America's Biotech and Life Science Clusters - Milken Institute

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America’s Biotech

and Life Science Clusters
San Diego’s Position and Economic Contributions
by Ross DeVol, Perry Wong, Junghoon Ki,

Armen Bedroussian and Rob Koepp
June 2004
The Milken Institute would like to give special thanks to key members of the Deloitte team.
The authors would like to express their gratitude to Mari-Anne Kehler for her vision in forging
a collaborative relationship between our organizations and in making the idea for this study
become a reality. We would also like to thank Andrew Bird and Stuart Sechriest for their support
in coordinating our efforts within the Deloitte organization, recommendations on stakeholders
to be interviewed for the study and in outreach efforts to the San Diego community. We greatly
appreciate the efforts of Teresa Young and Kim Snover of Deloitte’s San Diego office for arranging
the interviews and participating in many of them. Teresa Young’s valuable insights, offered after
reviewing a draft of the study, added a unique long-term cluster participant’s perspective. We would
like to thank Anthony Buzzelli for his efforts in helping coordinate with the Deloitte National Life
Sciences team. We appreciate all the feedback from Deloitte staff, too numerous to list. Additionally,
we would like to thank Joe Panetta and April Bailey of BIOCOM, and Susan Atkins of Susan E.
Atkins & Associates for their guidance and recommendations of key people to be interviewed.
Rob Koepp and the entire Milken Institute project team extend their sincere gratitude to all of the
San Diego cluster members who agreed to be interviewed for this project. Their insights added
context to the quantitative assessments and allowed us to get behind the numbers. They are listed
below in alphabetical order:
Howard Birndorf, CEO, Nanogen
Mike Borer, CEO, Xcel Pharmaceuticals
Wain Fishburn, Partner, Cooley Godward
Delbert Glanz, Executive Vice President, The Salk Institute for Biological Studies
Lisa Haile, Partner, Gray Cary Ware & Freidenrich
Edw ard Holmes, Vice Chancellor for Health Sciences; Dean, University of California,

San Diego School of Medicine
David Kabakoff, CEO, Salmedix
Arnold LaGuardia, Executive Vice President, The Scripps Research Institute
Catherine Mackey, Senior Vice President, Pfizer Global Research and Development
Connie Matsui, Executive Vice President, Biogen IDEC
Steve Mento, CEO, Idun Pharmaceuticals
Richard Murphy, President, The Salk Institute for Biological Studies
Gail Naughton, Dean, College of Business Administration, San Diego State University
Henry Nordhoff, CEO, Gen-Probe
Joe Panetta, CEO, BIOCOM
Duane Roth, CEO, Alliance Pharmaceutical
Ivor Royston, Managing Member, Forward Ventures
Teresa Young, Partner, Deloitte
Copyright 2004 Milken Institute
Acknowledgements
Acknowledgements ...................................................................................................
i
Executive Summary ..................................................................................................
1
History ...................................................................................................................
10
The Biotechnology Innovation Pipeline Index .....................................................
27
R & D Assets .....................................................................................................
28
Metro Findings .........................................................................................
30
Methodology ............................................................................................
34
Risk Capital & Entrepreneurial Infrastructure ..............................................
35
Metro Findings .........................................................................................
37
Methodology ............................................................................................
40
Human Capital Capacity .................................................................................
41
Metro Findings .........................................................................................
44
Technology & Science Workforce ...................................................................
49
Metro Findings .........................................................................................
51
Methodology ............................................................................................
55
Current Impact Assessment ...................................................................................
56
Size and Performance ..............................................................................
57
Diversity ....................................................................................................
57
Composite Index ......................................................................................
58
Metro Findings .........................................................................................
59
Methodology ............................................................................................
70
Overall Composite Index ........................................................................................
74
Metro Findings .........................................................................................
74
Methodology ............................................................................................
78
Multiplier Impacts ..................................................................................................
79
Metro Findings .........................................................................................
80
Methodology ............................................................................................
82
Conclusion ...............................................................................................................
83
Appendix .................................................................................................................
86
About the Authors ..................................................................................................
99
About Deloitte & Milken Institute .......................................................................
101
Table of Contents
1
Executive Summary
Chemistry and physics were the sciences that propelled technological advances in the first half of
the 20th century. Advances in engineering and electronics led to the computer and information
technology revolution in the second half of the 20th century, but progress in microbiology and
genomics hold the promise to make biotechnology the dominant economic force of the first half
of the 21st century. The electronic and computer breakthroughs will allow massive amounts of
genetic information to be decoded and processed. We are likely to see a fusing of information
technology and biotechnology into a highly effective means of disease prevention, detection and
finding cures. As a science and industry, biotechnology will mature and create enormous changes
in our lives and benefit the entire human race.
Numerous proteins are already used as therapeutics, the result of recombinant DNA technology.
Biotechnology companies have, through their partnership with pharmaceutical firms, improved
the quality of human life and extended the lifespan of many individuals. The industry has
discovered antibodies for cancer, arthritis and tissue transplant, growth hormones, and clot-busting
enzymes.
In addition to the race for discovering biotechnology-derived therapeutics, there is a different kind
of race underway: the one that will determine where the primary geographic locations of this
industry reside. The economic outcomes of where these biotechnology clusters form and grow are
likely to be immense.
The 21st century biotechnology cluster race has many regional entries in the U.S. and around the
world. Within the U.S., California has several metropolitan areas that are among the leaders as the
race commences including Oakland, San Francisco, San Jose, Los Angeles, Orange County, and San
Diego. The East Coast has Boston, Philadelphia, Washington, D.C., and Raleigh-Durham among
the leading aspirants. Seattle and Austin appear to be two other top geographic contenders.
What is a cluster? Industry clusters are geographic concentrations of sometimes competing,
sometimes collaborating firms, and their related supplier network. They are agglomerations of
interrelated industries that foster wealth creation in a region, principally through the export of
goods and services beyond their borders. A cluster represents an entire value chain of a broadly
defined industry sector from suppliers to end products, including its related suppliers and specialized
infrastructure.
Supplier networks are instrumental to the success of clusters and fostering sustained agglomeration
processes. Clusters are interconnected by the flow of goods and services. This flow is stronger than
the one linking them to the rest of the local economy. Cluster members usually include governmental
and nongovernmental entities such as public/private partnerships, trade associations, universities,
Executive Summary
2
think tanks and vocational training programs, venture capitalists, patent attorneys, and even
accounting and auditing firms in the case of biotechnology.
Because knowledge is generated, transmitted, and shared more efficiently in close proximity,
economic activity based on new knowledge has a high propensity to cluster in a geographic area.
A region with a top biotechnology cluster will have more innovations, less of which will escape
to other regions, or at least, they will do so at a slower rate. Regions excel to the extent that the
firms and talent in them can innovate successfully by being there, rather than elsewhere. This
is particularly poignant for an industry such as biotechnology whose survival is based upon
continuous innovation streams.
In this study, we compare and contrast the San Diego biotechnology and life sciences cluster with
11 other clusters identified above, review its formation and historical evolution and highlight the
industry’s economic contributions to the region. These 12 clusters were selected by reviewing
previous studies and performing statistical evaluations for which metropolitan areas possessed the
greatest specialization and concentration of the biotech industry in the United States.
To appropriately determine the density of a biotechnology cluster, we utilized the smaller
geographic area represented by metropolitan statistical areas (MSAs). Many previous studies based
their findings upon larger consolidated metropolitan statistical areas (CMSAs). Our organizing
principle for this study was to measure which biotech clusters were the densest, but at the same
time had sufficient scale.
To compare the relative strength of each metro’s biotech assets, we scaled out each component
measure by population, employment or gross metro product (GMP), such as the San Diego metro’s
academic R&D dollars (to biotech) per capita. After such adjustments, we compared the relative
scores of the 12 metros and ranked them. Many previous studies based their findings upon absolute
measures. By converting them to relative measures, a more accurate representation of the richness
and depth of the clusters is revealed. For a more complete discussion of this topic, please see the
methodology portion of the biotech research and development section on page 34.
Further, we created a unique biotechnology and life sciences data set and most importantly, provided
employment estimates through 2002. Previous studies’ most current employment information
went through 1997. In biotechnology, 1997 is ancient history. Our data set allowed an investigation
of recent growth performance.
Biotechnology Innovation Pipeline
The term “biotechnology innovation pipeline” refers to the support infrastructure and outcome
measures that reflect the ability of an area to capitalize on its strengths in biotech knowledge and
creativity. A rich innovation pipeline plays a pivotal role in a region’s biotech and life science
industry gestation, commercialization, competitiveness and ability to sustain long-term growth. It
also constitutes an important socio-economic asset to regional, state and national economies.
America’s Biotech and Life Science Clusters
3
Executive Summary
This study includes measures of research and development (R&D), risk capital and entrepreneurship
infrastructure, biotech and life science human capital, and biotechnology and life science workforce.
We begin with the biotech research and development (R&D) assets that can be commercialized for
future metro biotech growth. R&D assets are vital for biotech more so than any other industrial
sector, primarily because biotech, especially in its early stages, is intensely dependent on basic
research.
San Diego has particular strength in biotechnology research and development assets. Many San
Diego-based biotech and life science firms are devoted to R&D, either basic or applied, and they are
seeking more R&D funds and support. The Scripps Research Institute, Salk Institute for Biomedical
Studies, Burnham Institute and the University of California, San Diego (UCSD) provide a rich R&D
knowledge base for the region. San Diego’s composite score for biotech research and development
inputs is 79.7 (out of a perfect score of 100) before rebasing the top score to 100 for comparison
purposes, which positions the metro as top ranked among the 12 selected metros with a rebased
score of 100. The research and development composite is comprised of nine indicators.
San Diego’s relative advantages in the composite score come from its attractiveness to public R&D
funding such as National Science Foundation (NSF) for basic biotech research and National Institutes
of Health (NIH) for advanced research. San Diego also benefits from commercial opportunities for
biotech research. San Diego’s superior rankings in the relative biotech Small Business Technology
Transfer (STTR) awards and biotech Small Business Innovation Research (SBIR) statistics confirm
regional effectiveness in commercializing R&D efforts and new ventures. Boston ranked 2nd with
a composite score 78.9 (or a rebased score of 99) and Seattle, 3rd, followed by Raleigh-Durham-
Chapel Hill, 4th among the 12 competing metros.
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Entrepreneurial capacity and performance are major players in the new economic milieu in which
creativity and innovative dynamics determine the competitive advantage of a firm and an industry.
Risk capital and entrepreneurs are pivotal because new ideas are best equipped with new firms or
spin-offs. The Index’s Biotech Risk Capital and Entrepreneurial Infrastructure measure consists of
10 components, each of them portraying essential business climate aspects for biotech start-ups
and biotech entrepreneurial activities.
San Diego’s biotech risk capital and entrepreneurial infrastructure score is 88.6 (out of a perfect
score of 100) before rebasing the top score to 100 for comparison purposes. Its rebased score is 97.4,
which places it 3rd among the 12 selected metros. Northern California metros San Jose and San
Francisco, ranked 1st and 2nd, respectively. San Diego’s strongest achievement among the indicators
for Biotech Risk Capital and Entrepreneurial Infrastructure were biotech venture capital dollars per
$100,000 of GMP, biotech patents per population, biotech patent citations per population, and
Deloitte’s Technology Fast 500 companies in life sciences.
Though there are many economic factors expediting the formation of these biotechnology clusters
and sustaining them, the fundamental building blocks are pools of talent, human capital and their
respective capacity to fulfill the technical and operational requirements. Location still matters only
if it has vast capacity to attract talent that yield a tremendous amount of intellectual property (IP).
The Biotech Human Capital Capacity Index consists of 12 components examining stocks and flows
of biotechnology-related human capital that give us an estimate of the capacity to create IP.
San Diego ranked 4th with a composite score of 74.7 (or 79.7 after rebasing the top scoring metro
to 100) on biotech human capital. The region’s placement was distant from the top ranked Raleigh-
Durham and Boston, but it outranked life science heavyweights such as Philadelphia and Washington,
D.C. Among the 12 components, San Diego had four important components that ranked in the top
three places. They include per capita measurements of biotech postdoctoral fellowships, biotech
scientists and biotech bachelor’s degrees awarded, and the percent of biotech bachelor’s degrees
among all bachelor’s degrees granted in San Diego. San Diego distinguishes itself from many other
biotech centers by having a disproportionate share of locally produced PhD holders who go into
industry as opposed to academic research, a key advantage for commercialization success.
Sustaining a biotech cluster requires a workforce with industry-specific skills within a location
where operations take place. This pooling of specialized technology and science workforce can be
a critical factor for the industry to expand and firms to grow. The Biotech Workforce Composite
Index consists of six occupational components.
In the composite measurement of the region’s biotech workforce, San Diego scored relatively high,
ranking 5th among the 12 metropolitan areas studied with an unadjusted score of 85.3 or a rebased
score of 91.7. Its position is very respectable, but nevertheless exposes the weaker side of the region’s
biotech cluster in specific workforce categories and life science in general. In the measurement of
America’s Biotech and Life Science Clusters
5
workforce, San Diego fell behind Raleigh-Durham-Chapel Hill (1st), Boston (2nd), San Jose (3rd)
and Oakland (4th). On the other hand, the top five metros’ scores were very close to one another.
Current Impact Assessment
While the innovation pipeline addresses the capacity and infrastructure for success, the current
impact assessment focuses on the relative economic outcome of the biotechnology and life sciences
industry. By measuring economic outcomes, we are able to assess the effectiveness of policymakers,
participants and other stakeholders in transforming its assets into economic prosperity for it
residents.
The current impact assessment measures the absolute and relative importance of employment size
and growth, taking into account those metros that offer a more diverse set of life science industries.
Specifically, the current impact index is comprised of seven unique components:
• Employment Level in 2002,
• Location Quotient
1
(LQ) in terms of employment in 2002,
• Relative Employment Growth from 1997–2002,
• Number of Establishments in 2001,
• Number of Location Quotients Greater than 2.0,
• Number of Location Quotients Less than 0.5, and finally,
• Number of Life Science Industries Growing Faster than the U.S. from 1997–2002.
The first four components address the issues of size and performance, while the latter three
measure diversity. The Current Impact Composite Index (comprised of these seven components)
summarizes and creates a relative snapshot of the current economic impact or outcome.
Within the biotech composite, San Diego scored 100 (1st) on three of the seven measures and
is at 78 or better on the rest. Its strengths include not only relative employment size and growth
within the overall biotech industry, but also a high concentration mix of biotech-related industries
as explained by the diversity measures. While the region’s biotech activity is funneled primarily
through its R&D (North American Industrial Classification Code-NAICS 5417102), San Diego
has displayed significant growth in its biotech production process, thus creating a diverse set of
biotech-related industries. San Diego employs 14,500 biotech workers. Only Boston had a larger
biotechnology employment base with 18,700 workers. Boston ranked 2nd on the overall composite
index, followed by Raleigh-Durham in 3rd and San Jose in 4th place.

Although San Diego scored 100 (1st) in only two categories within the life sciences, it still managed
to rank 2nd overall with a life science composite index score of 92. Limited activity in pharmaceutical
Executive Summary
1
The Location Quotient (LQ) equals % employment in metro divided by % employment in the U.S. If LQ>1.0, the industry is more concentrated in the metro area than in
the U.S. average.
6
manufacturing coupled with underperformance in the medical devices industry relative to metros
like Boston, San Jose and Orange County are the primary reasons that San Diego slipped in
comparison to its biotech ranking on the current impact composite index. On the other hand,
San Diego scored highest on two out of the three diversity measures, suggesting that although the
region may not have the largest absolute share of national employment in life sciences, it certainly
ranks among the highest when adjusting for its total employment base.
In order to gain a more complete picture of the spatial dimensions of the San Diego biotechnology
and life sciences cluster, it is beneficial to map its organizations and employment centers. Most firms
are located in La Jolla and the area east of Interstate 5 in the city of San Diego near La Jolla. This
area is called the Golden Triangle by cluster participants and is bounded by Interstate 5, Highway
52 and Highway 805. These firms are within a five-mile radius of one another from the center. The
Golden Triangle represents perhaps the densest concentration of biotech research, firm and overall
employment in the nation. Ivor Royston of Forward Ventures supports this stating, “…We have
the highest concentration of biotech companies per unit mile, whatever the denominator ...” [e.g.
employment, per capita, population].
Overall Composite Index
The overall composite index includes the four components discussed within the innovation pipeline
and current impact assessment sections. The individual components are R&D inputs, risk capital,
human capital, biotech workforce and current impact. San Diego ranked 1st in the nation in the
biotech overall composite index. Much of this can be attributed to its relative 1st-place ranking
within the R&D and current impact indices. Boston is a close 2nd with a relative score of 95.1,
followed by Raleigh-Durham and San Jose with scores of 92.5 and 87.8, respectively.
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America’s Biotech and Life Science Clusters
7
The rankings in the Overall Composite Index shift when the biotech current impact index is replaced
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highly engaged in pharmaceuticals’ and medical devices’ manufacturing activity, in addition to
their biotech presence, rise accordingly. San Diego ranked 2nd on the overall life science composite
index. With Boston’s high concentration of pharmaceutical industries, that metro moved up to
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devices. San Jose and Raleigh-Durham finished 3rd and 4th, respectively, on the overall life science
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Multiplier Impacts
To better understand the importance of the biotech/life science industry in San Diego we must
analyze its impact on the overall economy. Multiplicative values known as “multipliers” allow us to
do this by quantifying how employment and output in biotech/life science industry ripple through
other regional economic sectors. In addition to providing numerical data on an industry’s regional
impact, economic multipliers also bring to light region-wide interdependencies and inter-industry
relationships.
Within the concept of multiplier impacts, three key forces are at play. In addition to the direct impact

of industry employment, wages and output, the biotech and life sciences industry impacts many
supplier industries such as legal, financial and advertising services. The indirect impact represents
the number of jobs, wages or amount of output generated from all supplier industries necessary to
support employment and output in biotech and life sciences. The higher employment and wages
in these supplier industries ripple throughout the local economy leading to higher purchases of
goods and services, which, in turn, cause higher income available to be spent in the local economy,
known as the induced impact
.
Altogether, the life science industry in San Diego MSA is responsible for 55,600 jobs, or nearly 5
percent of all nonagricultural employment in the region. Of those, 21,000 are accounted for directly,
while 12,600 and 21,000 are generated through the indirect and induced effects, respectively. For
every job within the life sciences in San Diego, an additional 1.7 jobs are created in all other sectors
(see graphs below).
Executive Summary
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8
America’s Biotech and Life Science Clusters
Similarly, the life science industry in San Diego MSA is responsible for $5.8 billion, or 5.3 percent
of gross metro product in the region. $2.8 billion is registered directly, while $843 million and
$2.2 billion are generated through the indirect and induced impacts, respectively. For each dollar
of output produced in the life sciences sector in San Diego, an additional $1.10 of output is generated
beyond it.
Conclusions and Policy Issues
Based upon our evaluation criteria, San Diego ranks as the top biotechnology cluster in the country,
edging past 2nd-place Boston. If the benchmarking criteria were adjusted somewhat, Boston might
surpass it. In many respects the two are virtually tied for 1st place. Many in the industry view
San Francisco as holding a top spot, but that perception is based upon looking at the entire San
Francisco Bay Area and absolute measures of performance.
Raleigh-Durham is a rising biotech cluster as denoted by its 1st-place finish in both the human
capital and biotech workforce categories (and its overall 3rd place in biotech) although the metro’s
smaller size must be taken into account. San Jose is the top scoring Bay Area metro biotech cluster
at 4th and grew faster over the last five years than San Diego. When extending the analysis to life
science clusters, including medical devices and pharmaceuticals, Boston moved past San Diego to
1st overall. Boston’s top position in medical devices and strength in pharmaceuticals give it more
diversity. San Jose moves to 3rd in life sciences, courtesy of its 3rd place in medical devices just
behind Orange County. Raleigh-Durham slips to 4th in life sciences.
As a national leader in biotechnology and life sciences, San Diego has enormous opportunities and
challenges in preserving or enhancing its position. Stakeholders must shepherd their talents and
resources to address the following issues:
• Despite its strength in overall R&D, San Diego should acquire a greater share of funding
distributed to research universities. UCSD is a great resource, but lack of scale could present
it with challenges in the future.
• More indigenous or local venture capital firms are needed to exploit the inventiveness of
entrepreneurs in the area. San Diego must reduce its dependence upon VCs flying to the
community by air. BIOCOM President Joe Panetta acknowledges that attracting more
venture capital firms to San Diego is one of its strategic initiatives.
• San Diego has been very successful at recruiting some of the best research talent from
around the country, and even the world. Nevertheless, it must continue to increase home
grown talent through UCSD and California State University, San Diego.
9
Executive Summary
• More local human capital in biotechnology should be created because the high cost of living,
especially housing, will make it more difficult to recruit young talent from other parts of the
country.
• San Diego needs to create more profitable biotechnology firms. Most are still operating in a
negative cash-flow position.
• San Diego must create a few larger biotech anchor firms to add more stability to the
ecosystem.
• A larger presence of pharmaceutical firms would create a deeper and richer management
pool that the larger life science cluster could draw upon.
• San Diego could enhance its future position as a biotech center by demonstrating an ability
to manufacture more products locally as opposed to being heavily research-based.
These observations should be understood in the context of San Diego as among the elite biotech
clusters in the world. Innovative and collaborative approaches for maintaining growth must
continue to be pursued. Pooling resources to retain and create biotechnology jobs, would enable the
San Diego cluster to be an even greater economic force in the region. BIOCOM, UCSD CONNECT,
San Diego Regional Economic Development Corporation, and other trade groups and associations
are vital support systems for progress.
10
America’s Biotech and Life Science Clusters
History
Introduction
San Diego’s recognition as a life science industry cluster is relatively new. The founding of
Hybritech, one of America’s pioneer biotech companies, in the Torrey Pines Mesa area in 1978
signified the first readily identifiable step that the region took toward becoming one of the world’s
pre-eminent biotech hubs. In the wake of that company’s growth and multifarious impacts, by the
1990s, San Diego went from being best known as a sleepy Navy town to a thriving center for life
science discovery and commercialization. The founders and others who played important roles in
Hybritech’s creation and development still contribute—though in capacities of greater experience
and influence—to the ongoing evolution of the cluster.
Yet the arrival of a cluster’s “seeding company” represents as much an end as it does a beginning:
the economic reward attained after preliminary work helped prepare the area for industrial
development. The significance of Hybritech (which in fact is no longer an ongoing concern in the
region) is transcended in a multitude of ways by additional efforts that were made before, during,
and after the company’s origination and growth. An intricate tapestry of cause and effect, one
which spans over 100 years, needs to be appreciated.
Early Beginnings
What is known today as the Scripps Institution of Oceanography (SIO) represents the first instance
of organized life science-related research in the San Diego region. Originally founded in 1903 as
the Marine Biological Association of San Diego, the association was institutionalized as a research
center of the University of California (UC) in 1912. At that time it also adopted the Scripps name
to recognize the benefaction of Ellen Browning and Edward W. Scripps, whose wealth acquired in
another knowledge-intensive activity—newspaper publishing—made such support possible. Today
the Institution directly employs around 1,300 people (nearly 600 of whom are scientists or graduate
students), with annual expenditures exceeding $140 million.
2
As one of the world’s oldest and largest marine science research laboratories, SIO has long stood as
an example of the region’s scientific capabilities. The San Diego area’s best recognized life science
research body that carries the Scripps name however is the Scripps Research Institute (TSRI),
founded in 1955 as the Scripps Clinic and Research Foundation, an offshoot of the Scripps Clinic
hospital. TSRI was chief among the early catalysts for biomedical research activity in the region.
Subsequently, the core of today’s biotech community has essentially evolved having radiated
outward from TSRI’s base along the ocean bluffs of San Diego’s Torrey Pines Mesa area of La Jolla
(see map).
2
Scripps Institution of Oceanography web site: www.sio.ucsd.edu.
11
History
The Scripps Research Institute solidified a position as one of the world’s leading centers of
biomedical research in 1961 with the recruitment of the immunologist Frank Dixon and a team of
four colleagues from the University of Pittsburgh. Specializing in the causes of autoimmune disease,
the pioneering work of Dixon and his team effectively put TSRI, in particular its Department of
Experimental Pathology, at the forefront of bio-science research.
In 1960 the city of San Diego gifted 27 acres of ocean-facing property on the Torrey Pines bluff to
Jonas Salk, discoverer of the polio vaccine, for establishing his Salk Institute for Biological Studies.
By that time, in addition to the Scripps Institution of Oceanography and biomedical Research
Institute, the divisional operations of General Dynamics involved in nuclear research, a private
company known as General Atomics, had located to the San Diego region as well. Similar to the
attractive force for talent exerted by the Scripps Research Institute, Jonas Salk brought to his center
some of the world’s foremost biological research scientists, including Francis Crick, one of the
discoverers of the “double helix” structure of deoxyribonucleic acid (DNA). Thus, almost two
decades before the launch of San Diego’s first biotech company, the area was already well populated
with advanced research sites and truly world-class human capital.
12
America’s Biotech and Life Science Clusters
Noticeably lacking in this early research base, however, was a full-fledged research university.
Although the Scripps Institution of Oceanography functioned as a University of California research
lab, it did not operate as a university branch campus. The closest nearby universities involved in
biomedical research up until then were the Los Angeles area campuses of UCLA, the University of
Southern California, and the California Institute of Technology—all located more than 100 miles
north.
This gaping lack of a nearby research university
was resolved in 1961 with the establishment
of the San Diego campus of the University of
California. Situated on the Torrey Pines Mesa
in close proximity to the SIO, TSRI, and the
Salk Institute sites, from its inception, UCSD
strongly orientated toward the medical sciences
and engineering. The leaders of the Scripps
Institution and General Atomics had in fact
been instrumental in lobbying the U.C. system
and San Diego government bureaucracies to
allow the campus’ establishment. The presence
of U.C. San Diego was envisioned by its founders
to constitute the “MIT of the West.” Its research
and teaching activities since then have added
tremendously to the intellectual diversity, depth
and stature of the region (see sidebar).
By the 1970s, this nascent cluster of life science-
related research institutions was being augmented
by proactive economic development policies and
the appearance of new research organizations.
Later prominent arrivals to the enclave include the
Burnham Institute, the Sidney Kimmel Cancer
Center, the Neurosciences Institute, and the La
Jolla Institute for Allergies and Immunology.
The Appearance of Biotechnology
It was back in 1919 that the Hungarian engineer,
economist, and government minister Károly
Ereky brought forth the term “biotechnology”
(in the original German: “biotechnologie”)
and its defining conceptualization of products
made “from raw materials with the aid of living
UCSD: Indicators of Bio-Science Strengths
Since its founding in 1961, U.C. San Diego has risen to become
one of the world’s leading universities for life science research.
The following illustrates various dimensions of its leadership
position.
Nobel Laureates. Ten UCSD faculty have been awarded the
Nobel Prize. Current faculty members who won awards relevant
to the life sciences are Francis Crick (prize awarded in 1962 for
discovery of the double helix structure of DNA), George Palade
(1974, structural and functional organization of the cell), and
Renato Dulbecco (1975, tumor viruses).
National Medal of Science. Considered the nation’s highest
scientific honor, eight UCSD faculty have been recipients,
including Nobel Laureate George Palade (1986) and Yuan-Chen
Fung (2000), professor emeritus of bioengineering.
MacArthur Foundation Awards. Popularly known as
the “Genius Awards,” 11 UCSD faculty have been recipients,
including Russell Lande in biology.
National Academy of Sciences. UCSD ranks 7th in the nation
in the number of faculty elected to the NAS, America’s premier
society for the scientific community. (The top 10, in descending
order, are: Harvard, U.C. Berkeley, Stanford, MIT, Yale, CalTech,
UCSD, Princeton, Chicago, and Cornell.)
Nature Magazine. The leading scholarly journal of the life
sciences, Nature, in its “Yearbook of Science and Technology”
has ranked UCSD as “one of the 10 most powerful research
universities in the United States.”
Cited Research. The Institute for Scientific Information
has ranked UCSD 5th in the world in terms of the most
cited molecular biology and genetic research papers. UCSD
pharmacology professor Michael Karin ranks 1st worldwide.
Source: U.C. San Diego.
13
History
organisms.”
3
Much of the promise of biotechnology did not begin to be realized until about one-
half century later, however, when exciting new discoveries and applications in molecular biology
came on the scene.
Despite San Diego’s already strong position in biomedical research capabilities, by the early 1970s,
it was the region’s Northern California counterpart, the San Francisco Bay Area, which took the
lead in crucial early biotechnology breakthroughs. Most notably, in 1972, Stanford biochemist
Paul Berg managed effectively to paste together two strands of DNA to form a hybrid molecule.
By the next year, his Stanford colleagues Stanley Cohen and Annie Chang along with U.C. San
Francisco’s Herbert Boyer devised a way to produce the world’s first recombinant DNA organism.
The teams’ process recombined DNA in desired configurations that, when inserted into the DNA of
reproductive bacteria, brought to life what are essentially molecular manufacturing plants. These
cornerstone developments in genetic engineering provided the basis for the biotechnology and
biopharmaceutical industries of today.
San Diego, however, was not far behind the epoch-making advances occurring in laboratories
of Stanford and U.C. San Francisco. In fact, San Diego’s start with new biotech discoveries and
commercialization—in a way very similar to its start in the previous decade with semiconductor
research and manufacturing—grew as an outcropping of the talent and financial capital that had
been accumulating in the greater San Francisco area.
In the case of the formation of San Diego’s first full-fledged biotech company, Hybritech, its two
co-founders had been lured away in 1977 from research positions at Stanford to do work at U.C.
San Diego on what was then one of the most promising fields in biomedical research: monoclonal
antibodies. Monoclonal antibodies—genetically engineered proteins that were touted as “magic
bullets” because of their potential to attack cancer without destroying healthy cells—were discovered
in 1975 by a team of scientists working at Cambridge’s Laboratory of Molecular Biology in England.
The scientists, César Milstein and Georges Köhler, went on to earn a Nobel Prize for their work.
Yet owing to severe government mismanagement of the laboratory’s intellectual property and
lack of channels for technology transfer, nothing was done in Britain to develop the invention
commercially.
4
In contrast, within less than a year of their arrival at UCSD’s cancer center, the
former Stanford research team of Royston and Birndorf had decided to find a means to set up a
company based on their own advances in monoclonal antibody production techniques.
Royston and Birndorf named their company after the field of hybridoma technology, a process of
fusing an antibody-producing cell with a tumor cell to produce a hybrid that then can be repeatedly
3
Fári, M. G., R. Bud, P. U. Kralovánszky. 2001. “The History of the Term Biotechnology: Károly Ereky and His Contribution,” presentation at the Fourth Congress of Redbio
– Encuentro Latinoamericano de Biotecnologia Vegetal, Goiânia, Brazil, June 4-8.
4
Koepp, Rob. 2002. Clusters of Creativity: Enduring Lessons on Innovation and Entrepreneurship from Silicon Valley and Europe’s Silicon Fen (Chichester: John Wiley & Sons),
167.
14
America’s Biotech and Life Science Clusters
cloned to generate customized, consistently identical “monoclonal” antibodies. They incorporated
Hybritech on September 14, 1978. By the following month, they were flush with almost twice the
amount of capital financing than they had originally sought. The money, the founders’ knowledge
of their field and its experts, and helpful guidance from their venture capital investor, allowed
Hybritech to recruit top talent to its modest subleased lab and office space located in what was
then the recently opened La Jolla Cancer Research Foundation (today known as the Burnham
Institute).
One of the most surprising aspects of Hybritech’s early and subsequent success was the sheer
modesty of the company’s original purpose. The company came together without an elaborate
business plan and no substantial business experience held by the founders. Royston and Birndorf
entertained the hope that whatever revenue came from their venture might eventually be enough to
support the very expensive primary research required for developing monoclonal antibodies that
could cure cancer. But specific plans for Hybritech, which co-founder Birndorf thought of as “a very
nice little business,” were themselves of minor scale (see below). Everything about the environment
in which the company operated was fairly humble as well; from Hybritech’s subleased work area to
its location in a region that at the time boasted an image of sleepy tranquility. In the late 1970s, the
San Diego metropolitan area’s best known regional assets were still its weather, military bases and
defense industry manufacturers.
Hybritech: The View from Employee No. 1
Howard Birndorf did not come to San Diego with the intention to participate in the founding of a
biotech company, let alone what would become the seeding firm of the area’s thriving life science
industry cluster of today. Yet from the opportunity to pursue his scientific interests in a laboratory
at U.C. San Diego, he found the area afforded him more than just possibilities with lab bench
science, but with starting up commercial enterprise. Since becoming the first full-time employee at
San Diego’s first biotech company, Birndorf, who now serves as the CEO of the San Diego biotech
company Nanogen, has gone on to play an influential role in the establishment of numerous biotech
firms and industry-related organizations. The following comments come from his reflections on
what brought him to San Diego; how Hybritech was initially formed, funded, and operated; and the
significance of the industrial cluster that emerged in its wake.
Arrival in San Diego
I grew up in Michigan and I did my graduate work there, at Wayne State University, and then
worked full time as a research scientist at the Michigan Cancer Foundation. I decided that I wanted
to leave the winters and move to California. I moved to the Bay Area and got a job as a research
associate at Stanford University in the division of oncology. During my tenure there I met another
15
History
researcher, Ivor Royston, who was an M.D. He and I hit it off and we did sort of skunk work
experiments, looking at new technology called hybridomas, which was a way to immortalize
an antibody-producing cell line. He finished up his Stanford fellowship and was offered a
position at UCSD as an assistant professor. He asked me to move down here to start and
run his laboratory, so what brought me to San Diego initially was this job opportunity at
the university.
Technological Innovation
While we were doing work in the lab on these hybridomas, both Ivor and I recognized
the commercial possibilities associated with selling antibodies that were uniform and
standardized. I would like to say that we had the big vision, but initially it was a much smaller
vision. The vision was based on how we bought antibodies all the time for our research and
antibodies back then were made in animals. The animals were injected with immunizers
and then their blood would be harvested and the antibodies isolated and purified and sold.
Each batch was different. Each time you did it produced different immunogenicity and
whatnot and you had to test each batch, etc. Our initial thought was, “Well, wouldn’t it be a
nice business if we set up a company that would sell research antibodies and each antibody
would be the same forever?” So anybody doing research with a particular antibody that we
sold would know that every time they bought it from us it would be exactly the same. They
wouldn’t have to adjust their experiments for the different properties of the antibody.
Writing the Business Plan
We thought, well, this would be a very nice little business. So we went out and bought a book
called How to Start Your Own Business. Both Ivor and I read the book and we wrote—I think
it was a six-page business plan; he wrote certain sections and I wrote certain sections. We
put it together. Ivor was an M.D. oncologist, I was a biochemist molecular biologist working
in the lab;neither one of us had ever had any business experience. I mean, I always worked
through high school and college and whatnot but [not in business management]. So we
wrote this business plan. In retrospect it was quite naïve, but it covered the fundamental
principals of equity participation and we developed a budget of what it would take to get
through the first year. The amount we came up with was $178,000. We actually took this little
business plan around, I took it around to friends of my family who had money; personal
friends that I knew that could afford something like this, but it was way too technical and
too complicated for them. They had no clue as to what we were talking about and they were
quite hesitant to get involved in something they didn’t know anything about.
Securing Venture Capital
So we came up with the idea, let’s go talk to the venture guys that started Genentech [America’s
first biotech company, based in South San Francisco on Herbert Boyer’s developments in
gene splicing]. Through a personal contact we were able to get a meeting with Brook Byers,
who was the junior partner at the firm, Kleiner Perkins. Brook came down with his partner
Tom Perkins. We showed them the lab, we had a small little lab at the university and they
16
liked the idea. We took them to the airport and we sat in the bar at the airport and we
finalized the deal. There were two things they did. One is, they said, we know guys like you
typically underestimate how much money you need, so we’re going to give you more than
you asked for, we’re going to give you $300,000 instead of the $178,000. The second thing
they told us is that neither one of us would be the president of our firm because we had no
business background. With those terms we agreed. Since Ivor had never intended to leave
the university we decided he was going to be a consultant to the company and would go on
the board of directors. I elected to go and start the company as a full-time employee. Kleiner
Perkins brought in a number of consultants and we broadened our concept from that of
a research antibody company to a diagnostic/therapeutics company. We incorporated in
September and we closed the financing on October 18, 1978.
Starting Operations
I left the University in October of ’78 to become the first employee of Hybritech as vice
president. My last day at the university was on Friday and on Monday I went and rented
a lab with an office over at what was then called the La Jolla Cancer Research Foundation.
I had an empty lab and an office with a desk a chair and a telephone. I started ordering
supplies and started interviewing people to hire. One of the first was a research scientist,
a Ph.D., named Gary David, who was very proficient on the antibody side. Then one of
the things Kleiner Perkins did was find a former McKinsey consultant who had worked at
Baxter Travenol who had gotten excited about this whole monoclonal antibody thing and
was in the process of trying to do a start-up that would have been a competitor to Hybritech.
His name was Ted Green. They managed to convince him to join us rather than do his
own start- up. Ted came down and started as president. Brook was chairman. That was the
initiation of Hybritech. By the end of that year we had gotten in all of our equipment, we
had done our first experiments, and we actually had our first proof of principle antibody
production going.
Protecting Intellectual Property
We founded Hybritech on a technology that was not patented. Gary David and Ted Greene
were kicking around how you might use antibodies in the assay and came up with this idea
of this sandwich assay which we could patent. We filed the patent sometime mid-year ’79.
Today it would be highly unusual to start a company based on an unpatented technology
where others could come in and compete with you. I think that one of the things that really
did make Hybritech successful that was within a year we had filed a major patent, which
protected the idea of using two monoclonals in a sandwich assay. It was upheld through
several intensive court battles. Going through the court system really nobody thought the
patent would be upheld, but it was. It prevented others from doing what we were doing.
The Cluster’s Strength: “Falling Off A Log”
I think that the fact that there’s venture capital, management talent, and entrepreneurial
attitude here in San Diego, coupled with the fact that you have these major research
America’s Biotech and Life Science Clusters
17
institutions within three square miles supports the whole reason that this cluster is here. Additionally,
the networking here through the programs such as [UCSD’s] Connect and BIOCOM have created
a situation where starting a company is like falling off a log. The network is so in place for not just
the money, but the facilities and the legal support, both corporate and patent, the lab supplies,
you name it. Everything is here, easily available and even if somebody has no clue as to what that
is, there are so many people here that do know now and can help somebody who wants to do it.
You’ve got serial entrepreneurs—Hybritech for some reason spawned a dozen or two-dozen serial
entrepreneurs. The university Connect program bridged academia and industry.
Source:
Howard Birndorf, Interview, April 16, 2004.
Yet succeeding far beyond what originally had been expected of it, Hybritech came to represent the
most noticeable first step in economically elevating the region far beyond being merely a pleasant
location for conducting not-for-profit biomedical research. In the wake of Hybritech, has come
both a deepening and a broadening of the area’s commercial and R&D assets. Today it is accepted
in a way unheard of some 25 years ago, that San Diego presents a suitable base for ambitious life
science companies. The region now has what can be considered an interlocked and multilayered
cluster that offers a uniquely entrepreneurial and creative dynamic generated by rivalrous and
related firms and multiple sources of support.
One indication of Hybritech’s lasting impact on the cluster is the number of companies that can
be traced back to former Hybritech employees. As of the 25th anniversary of Hybritech’s founding,
the San Diego Union Tribune counted more than 50 firms (listed on following page) that could be
considered the progeny of San Diego’s original biotech firm.
History
18
1983
1. Gen-Probe
1985
2. IDEC Pharmaceuticals
3. Clonetics
4. Pacific Rim Bioscience
1986
5. Gensia
6. Immune Response
7. Cortex
1987
8. Ligand Pharmaceuticals
9. Amylin Pharmaceuticals
10. Viagene
11. Lipotech
12. Corvas
13. Cytel
14. Pyxis
15. Vical
1988
16. Biosite
1989
17. Epimmune
18. Medmetric
1990
19. Dura Pharmaceuticals
20. Genesys
1991
21. Nanogen
1992
22. Sequana Therapeutics
23. Somafix
24. Cypros
25. Novadex
26. Applied Genetics
1993
27. Gyphen
28. Cyphergen
1994
29. Combichem
30. Digirad
31. Chromagen
32. Novatrix
1995
33. Collateral Therapeutics
34. Maxia Pharmaceuticals
35. Triangle
Pharmaceuticals
36. GenQuest
37. First Dental Health
38. Urogen
39. Nereus Pharmaceuticals
1996
40. Metabasis Therapeutics
41. Women First Healthcare
1997
42. Tandem Medical
1998
43. CancerVax
44. Genicon
2000
45. GenStar Therapeutics
46. Favrille
47. Ambit Biosciences
2002
48. Corautus Genetics
49. Verus
50. TargeGen
51. Kemia
2003
52. Somaxon
53. AnalgesX
5
Expanding Cluster Assets and Capabilities
As stated at the beginning of this chapter, the birth of the San Diego life science cluster’s seeding
technology enterprise represented both an end and a beginning: a cumulative payoff for concerted
efforts to make the region an attractive base for biomedical research, as well as the start of an
entrepreneurial and highly innovative industrial base that helped take the region beyond its
economic dependence on tourism and defense spending.
Within five years of Hybritech’s founding, spinoff companies were being formed (the first, Gen-Probe,
was co-founded by Hybritech employee number one, Birndorf, himself). Over time, the fortunes
of the firm would vary. In 1986, Hybritech lost its independence with a $480 million acquisition
by the pharmaceutical giant, Eli Lilly. The style of Hybritech’s pre-acquisition management team
5
Crabtree, Penni. 2003. “A Magical Place: Hybritech Launched San Diego’s Biotech Industry,” San Diego Union-Tribune, September 14, 2003: H-1.
America’s Biotech and Life Science Clusters
19
did not blend well with Lily’s more staid administrative practices. The remainder of Hybritech’s
first-generation leadership eventually went on to pursue other endeavors. Though this signaled the
final decline and later disappearance of Hybritech’s San Diego operations, the turn of events also
immensely strengthened the cluster as the release of accumulated experience and wealth amassed
by Hybritech alumni went into seeding a plethora of new enterprises and initiatives.
Chapters that follow in this report delve into the statistical data and economics behind the life
science industry that since then has taken root in San Diego. Before exploring the numbers behind
what makes the cluster what it is today, this chapter concludes by offering a brief glimpse into the
thoughts of people who have made and are making the cluster so dynamic.
What follows is but a minute sampling of the experiences and observations related by the many
cluster leaders who shared their valuable knowledge and insights with Milken Institute researchers.
Containing brief synopses of their stories organized according to the roles they respectively played
either in San Diego’s life science research community, the commercial life science industry, or the
cluster’s support industry, the following pages give a direct feel for how the cluster has evolved
and matured. A sentiment repeated by many of the leaders spoken to was that in San Diego’s
knowledge-based cluster, it is people—more than the technology or institutions that give the
region its infrastructure and wellsprings of capital—who are most crucial to the region’s success.
The sampling of comments from cluster leaders that follows is intended to help round out an
appreciation of the relevance of the science and economics of the area by putting contributing
factors into a more human-based perspective. The background stories and comments also offer a
sense of how the cluster has evolved in recent years and in what directions it might be headed.
Research Community Leaders
Richard Murphy, president of the Salk Institute, has been in San Diego since 2000, having previously
run McGill University’s Montreal Neurological Institute. The purpose of Murphy’s current
organization, which relies heavily on funding from the National Institutes of Health (NIH), is to
conduct basic biological research. This is a goal that has remained unchanged since its founding by
Jonas Salk. Yet the operation has expanded greatly since then, integrating into the business of the
area and adopting a particular management style to fit the institute’s evolving nature.
By its own estimates, the Salk Institute generates $100 million a year for the local economy. Its
scientists have been involved in the founding of nearly 20 companies and developed 250 active
patents that are being licensed to biotech or pharmaceutical companies. Although Salk researchers
are prohibited from engaging in contracted research, they are given the freedom to integrate
themselves closely with the commercial applications of their work. As Murphy explained: “We allow
our faculty—and this is in accordance with NIH rules—to work one day a week off-site. (Don’t ask
me how we know they only spend one day!) I think we’re very supportive of getting the technology
that we generate, out into the marketplace and into the hands of people who can develop it for
History
20
others to use and hopefully to create products. I mean, that’s part of the mandate of NIH. So we’re
very comfortable with that.”
6
As the head of an Institute that is defined by its leading-edge thinkers, Murphy (himself a renowned
scientist) practices a style of management known as “Covert Leadership.” He characterizes the
benefits of this approach in the following terms: “The one thing you don’t want to do is you don’t
want to compete with your own scientists for attention or visibility. The way you want to do it is
you want to stay in the background and you want to make sure the institute is running well but let
the scientists be stars.” He also contends that keeping staff well-informed is key. “They don’t like
surprises, and we don’t like surprises. So we have a lot of meetings. Part of it is that we’ve become
very strategic. This morning I met with three people to say, ‘Here’s what I’m thinking, are you
comfortable with this?’ Not only were they comfortable with it, but one of them came up with a
much better modification that makes me look good. So to sit there and have those conversations
with very bright people is quite important.”
Edward Holmes, dean of the University of California San Diego’s School of Medicine and vice
chancellor for Health Sciences, like Murphy, is relatively new to the San Diego cluster. Holmes took
his current position three-and-a-half years ago after serving as dean of Duke Medical School and,
prior to that, dean for research at Stanford Medical School. The Medical School is a later addition
to U.C. San Diego, established several years after the campus’ founding. Surprising, given the size of
San Diego’s population and the area’s activities in biomedical research, Holmes is in charge of the
only medical school in the region.
Yet the dean also sees advantages with the school’s relative smallness, as it “tends to put us in a good
position to interact with other people.” With a faculty that only numbers 750, it means the school
ranks around 15th in total National Institute of Health (NIH) dollars received. “But,” he is quick to
point out, “if you look in research dollars per faculty member, we’re one, two, or three depending
on the year.”
7
Other statistics that Holmes cites in pointing to the school’s success include ranking number two
in the impact of pharmacological research, three in molecular biology, and number one per faculty
for membership in the National Academy of Sciences. Within the cluster, over 65 companies have
spun out of the School of Medicine. “Another thing that’s special I think in San Diego,” he observes
“is it’s a very entrepreneurial community. … UCSD reminds me of what I would have guessed
Stanford was 20 years ago.”
All the same, Holmes believes that much more can be done to leverage UCSD’s diverse academic
resources. “My sense is there’s an opportunity for us that we haven’t capitalized as much on it as
6
Interview, May 4, 2004.
7
Interview, April 14, 2004.
America’s Biotech and Life Science Clusters
21
we might. We have really extraordinary strengths here in computation with the San Diego Super
Computing Center and with one of the state’s centers of excellence for information technology, Cal
IT2. It has brought tremendous expertise to this community in things like bioinformatics, and in
imaging. I think for the future of both biomedical research but also for [information] technology
development imaging is very, very important.” Recent progress in combining UCSD’s biological
and computational resources is a source of encouragement, however. Holmes notes advances being
made in Functional Magnetic Resonance Imaging (FMRI, a noninvasive way to look at biological
functions) and Positron Emission Tomography (PET, a means for labeling a compound to trace
where it goes in the body).
Life Science Industry Leaders
After the acquisition of his Connecticut-based gene therapy company in 1993, Henry Nordhoff
joined Gen-Probe (the first of the Hybritech spin-offs) as its president and CEO in 1994. At the
time of his appointment, Gen-Probe was operated exclusively as a diagnostics company but has
since branched out into blood screening. By internal company estimates, it now occupies about 90
percent of the market for screening the U.S. blood supply (donated blood that is checked for viruses
such as HIV, hepatitis C, and West Nile). Last year the company earned over $200 million in sales. It
employs about 850 people locally and invests heavily in research, with nearly one-third of revenues
going toward R&D.
Despite the Gen-Probe’s strong research orientation, Nordhoff himself does not have formal
scientific training, but rather learned the craft of the life science industry through previous work
experience at the leading pharmaceutical company, Pfizer. Reflecting on his background and how
it relates to the cluster overall, the CEO remarks: “I’ve tried to stay out of the science. Let the
experts do the science. And I’ll just step back and just use some rationality and judgment and
make sure everything hangs together. … I think there are others like me, you know with business
type backgrounds; others are scientific. It would be interesting to see if there is a correlation of
success between leaders with those different backgrounds. It probably doesn’t exist, it probably just
depends on the personality, on the managerial style …”
8
Despite his lack of formal scientific training, Nordhoff takes an approach to recruiting and
motivating Gen-Probe’s highly skilled workforce in a style reminiscent of the leaders of highly
innovative research organizations. As he states: “We try to get the best people we can. We try to
empower them as much as we can. … We’re big on communication, and we are big on openness,
you know, clarity, transparency, telling the people what we are doing, our strategic plans, and all
that. We single out the key managers, a group of about 65 to 80 managers who are below the VP
executive level, speak to them, and try to get dialogue from them, tell them what we are doing, ask
8
Interview, April 2004.
History
22
them for comments. We do that every couple of months.” The key to his company’s—as much
as the cluster’s—success, Nordhoff asserts, is “people. … The right blend of people, support and
opportunity.”
Salmedix’s David Kabakoff first came to the area in 1974 as a research fellow at UCSD, where he
conducted his post-doctorate work under Nathan Kaplan, a biochemist renowned for his advances
in enzymology and chemotherapy. Kabakoff left the area after completing his post-doctorate but
was brought back when recruited to join Hybritech in 1983. By the time he left the firm six years
later he was serving as senior vice president of research and development-diagnostics. From there
he moved to Corvas International, a biopharmaceutical company, and served as its CEO before
later moving to Dura Pharmaceuticals, a specialty pharmaceutical company, that was eventually
acquired by Elan Corporation. Cofounding Salmedix, an oncology drug development company, in
2001, Kabakoff now serves as its president, CEO and chairman.
A three-year-old, 36-person company, Salmedix maintains close ties to UCSD. In addition to several
licensing agreements, the company’s core science originated at UCSD and one of its founding
scientists, Dennis Carson, directs the university’s Moores Cancer Center. Relating his company to
the cluster and its evolution, Kabakoff observes: “The company itself is an active member of the
local trade association [BIOCOM], the UCSD Connect Program, and if you look at the employee
base, I think pretty much every employee here has worked for at least one or more previous San
Diego employers, with a few exceptions. We’re located in town, so many of our employees have
either worked at the university or, even more of them, at other local companies ... as the community
has grown up since the early 1980s, people who have been in one company have moved to another
company and then moved to another company. I would say within Salmedix, you have a fairly
typical set of connections.”
9
Mike Borer, the president and CEO of the specialty pharmaceutical company Xcel Pharmaceutical
first came to San Diego in 1977 as an undergraduate at San Diego State University. Majoring in
finance, he spent 12 years in public accounting, alternating between Denver, Colorado, and San
Diego. He ultimately entered the pharmaceutical business by joining Dura Pharmaceuticals in
1994. After Dura was sold to Elan Pharmaceuticals in 2000, Borer and some of his former Dura
colleagues decided to form Xcel.
Having graduated from a local university and moved on from one San Diego company to another,
Borer fits something of the typical profile for an executive with long-experience in the cluster. At
the same time, with Xcel Pharmaceutics, he is developing a business model that is fairly unique. As
he explains: “We are not what I would consider a biotech or true biopharmaceutical company. We
have a significant commercial operation and are pursuing late-stage product development, but we
have no part in the research, basic research, or early research or even early development within our
9
Interview, April 16 and 21, 2004.
America’s Biotech and Life Science Clusters
23
business model. I think we’re the minority within the pharmaceutical and life sciences side of [this
cluster] in that we started as a commercial organization. … Most of the companies in San Diego
really have come traditionally through the research and also development side of things, only in
some select cases through a focus on commercialization.”
10
The presence of a company like Xcel testifies to the recent broadening of the cluster in terms
of operational models. Xcel represents the emergence of commercially focused pharmaceutical
production, something that had largely passed the cluster by, during its early phase of growth.
Another, more frequently commented on, recent development is the growing presence of the
operations of large pharmaceutical corporations, “Big Pharma,” which have been establishing an
increasingly large and numerous research footprint in San Diego.
One of the best examples of this comes from the purchase by Warner-Lambert of San Diego’s
Agouron Pharmaceuticals, which had the distinction of being the first biopharmaceutical company
in San Diego to market a therapeutic drug from its own research. Warner-Lambert bought Agouron
in 1999 for $2.1 billion. Within a year-and-a-half, Warner-Lambert was in turn purchased for $90
billion by Pfizer, which inherited its San Diego facilities. As Catherine “Kitty” Mackey, the head
of Pfizer’s La Jolla Laboratories, states: “Pfizer had wanted to have an R&D location in California
for many years; we’ve been looking for an opportunity to be in California. So this was very much
a welcome part of the Warner-Lambert acquisition, the Agouron acquisition. And so when Pfizer
became the owner, we invested quite a bit in terms of expanding the facility here and really put
down roots and made a commitment to stay.”
11

Pfizer La Jolla is now the fourth largest R&D site for the global drug company, currently contributing
about two dozen potential medicines to the company’s development pipeline. Although complaints
are sometimes heard that the presence of Big Pharma in the cluster necessitates the “selling out” of
once promising locally based independent firms, it can also be said that the investments of capital
and human resources by the pharmaceutical giants is adding significantly to the stature and capacity
of San Diego’s life science industry base. As Mackey points out: “Within the community here, we
have a number of different relationships. I just got a list the other day of the various collaborations
that Pfizer has with biotechs. … In terms of universities, I wish I could keep track of it because
it’s funny, with UCSD there’s so many different touch points. I wish there was a database—UCSD
wishes there was too—to keep track of this, but you know the scientists just call each other up and
they’re doing all sorts of things.” Mackey also remarks on the value of working closely with Ed
Holmes and UCSD School of Medicine, “exploring at this point a number of different ways that we
can collaborate.”
10
Interview, April 16, 2004.
11
Interview, April 14, 2004.
History
24
Support Industry Leaders
Since arriving in San Diego in 1977 as an assistant professor of medicine at UCSD, Ivor Royston has
made tremendous contributions to the San Diego cluster as a researcher and business innovator.
He began his latest enterprise, Forward Ventures—what is today the major life science-dedicated
venture capital firm in the San Diego region—in 1990. From starting what he considered a “hobby
fund” with himself as general partner and limited partners made up of family and friends, Royston’s
firm has since come to manage an institutionally invested series of venture capital funds, the latest
being his fifth-generation Forward Ventures V.
12
“We are part of the fuel of this biotech industry here,” Royston explains. “Whereas back in the
1970s, there was no venture capital firm here, we had to access venture capital from the Bay Area.
But that’s now changed. There are a handful of firms in San Diego that do both IT and biotech.
But we’re a specialized biotech investment firm. And what I do now is to use my experience from
a quarter of a century of being involved with the biotech industry to help other scientists develop
their ideas and transfer of technology out of institutes and universities into companies.”
While acknowledging the importance of the cluster’s capacity to generate cutting-edge science,
Royston stresses how having capable people, more than brilliant technology, has built up the
cluster. “My experience, which goes all the way back to Hybritech, has brought me in contact with
many, many different people. Probably the most important thing I’ve done is tap individuals to
take on managerial responsibilities in companies that I’m working on. So, a good example of that
would be recruiting David Hale, who was the CEO of Hybritech, to become the CEO of one of
my new companies, Cancervax, which just went public. I know from my experience going back to
Hybritech that, number one, management is far more important—significantly more important—
than technology. Many times I’ve seen technology fail and management teams win by coming up
with other technologies to work on. But it doesn’t work so much the other way: I’ve seen companies
get ruined by having the wrong management teams.”
When asked to provide one word that describes the San Diego life sciences cluster, people interviewed
for this study tended to respond with words that relate to a sense of creative dynamism and shared
purpose: for example, words such as “entrepreneurial,” “collegial,” “innovative,” and “interactive.”
Among various programs, initiatives, and organizations established to reinforce and build upon the
core dynamics of the cluster, BIOCOM represents the cluster’s leading networking and advocacy
organization. With more than 450 member companies, BIOCOM claims to be the largest regional
life sciences association in the world. As Joe Panetta, president and CEO of BIOCOM, asserted, his
organization plays a variety of strategic roles in support of the cluster:
12
Interview, May 3, 2004.
America’s Biotech and Life Science Clusters
25
I think that first and foremost BIOCOM is an organization that brings together the entire industry and
the service sector upon which the industry depends to be able to grow and to accomplish its goals. And
when I say BIOCOM brings the industry together, we do this in more than one way. The obvious way is
we hold different events that allow people to come together and network with each other. That’s fine if you
simply want to allow random motion to provide the chance for people to interact with each other. But we’re
also very focused on areas like providing advocacy and information to the public, the legislators, and the
media and others who need to be informed about what the industry is all about, what the industry is out
to accomplish, and what the challenges are. Beyond that we know that we have to build this industry in San
Diego through our relationship with the service providers that are here and the ones that we can hopefully
attract to San Diego. BIOCOM focuses on bringing new venture capital investment to San Diego, as well as
attracting pharmaceutical companies, partnerships, and investment banking. We also focus on creating the
opportunities for future jobs by working with the universities and the colleges to insure that curriculum and
training programs are being created for the biotech workforce of the future.
13
Indicative of the cluster’s success in attracting service providers that support the cluster is the San
Diego presence of San Francisco-based Cooley Godward, one of America’s premier technology
law firms. After getting involved with a locally based venture capital fund established by Hybritech