monitor sacramento life sciences

TAKINGACTION FORTOMORROWSacramento Life SciencesStrategic Action Plan

Prepared by: Paul Yu-Yang, Gabriela Lee, Sungene Ryang, Tod StolzUC Davis Graduate School of Management

Faculty Advisors: Andrew Hargadon, Faculty, UC Davis School of ManagementLarry Fox, Director of the Technology Transfer CenterNicole W. Biggart, Dean of the UC Davis School of Management

CONNECT organized The Governor’s Sacramento Region Life Sciences Summit.

Copyright © April 2004

SARTA

TAKINGACTION FORTOMORROWSacramento Life SciencesStrategic Action Plan

Prepared by: Paul Yu-Yang, Gabriela Lee, Sungene Ryang, Tod StolzUC Davis Graduate School of Management

Faculty Advisors: Andrew Hargadon, Faculty, UC Davis School of ManagementLarry Fox, Director of the Technology Transfer CenterNicole W. Biggart, Dean of the UC Davis School of Management

CONNECT organized The Governor’s Sacramento Region Life Sciences Summit.

The Sacramento Regional Technology Alliance (SARTA) commends the efforts of the University of

California including the Office of Research, the Technology Transfer Center, UC Davis CONNECT and

the UC Davis Graduate School of Management for their ground breaking efforts in the development of the

regional Life Sciences sector in the Sacramento region.

This sector is flourishing with numbers of developing companies being formed and cooperative rela-

tionships being developed both in the academic community and the private sector. The Sacramento

Regional Life Sciences Summit is one more giant step in establishing the region as a viable Life Sciences

hub. The investment community and entrepreneurs alike will directly benefit from this conference.

The breadth of speakers planned for this event exceeds any prior effort of its kind in the

region. Regional, national and international organizations and individuals involved in the bio-

sciences will be represented.

Planning for future efforts in the evolution and expansion of the Life Sciences in our area has also been

a key part of the preparation of this Summit. The comprehensive nature of the Sacramento Regional Life

Sciences Strategic Action Plan will be a template that will guide the future of technology development in

the region for years to come. The efforts of University staff, faculty and students should be commended

for their extensive data collection and assimilation efforts in deriving a meaningful document that will edu-

cate and direct many of our state and national decision makers.

This type of leadership at the regional level is essential for the development of the economy and

unlocking the true potential of our institutions of higher education and research facilities. Setting the stage

for similar events and activities, this event and planning effort raises the bar for others competing for the

recognition gained here through these efforts. The next step for this area is a true commitment by local

leaders, the government, and the University to make these plans a reality.

Congratulations to all. We hope to support your efforts at every turn.

Sincerely,

Roger AkersChairSacramento Regional Technology Alliance

iv SACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

March 4, 2004

Business development interests have discovered the promise of Sacramento, including its

location near the San Francisco Bay Area with many of its advantages but without the liability

of the high cost of living and overcrowding.

The greatest potential is the growth of the Sacrtamento area’s life sciences industry.

UC Davis, historically a major research center in agriculture, is developing an international

presence in life sciences subfields such as genomics, proteomics, and bioengineering, and in

medical therapeutics and diagnostics.

The nationally ranked UC Davis Graduate School of Management is playing a major role

by offering first-class business talent and expertise to commercialize the discoveries and

inventions that are emerging from the campus and the region.

This plan assess the elements in place and emerging possibilities that can form the founda-

tion of a robust life sciences business cluster in Sacramento. There is much to build upon,

but as the report notes, having the right ingredients for a cake does not guarantee that a cake

will rise; a good recipe is critical.

Four UC Davis MBA students, a highly skilled group with deep experience in science

fields, have produced a useful and insightful document that inventories the region’s “ingredi-

ents.” This is an important resource for the region and will provide guidance to business

people and political leaders looking to enhance the economic future of Sacramento.

I look forward to participating in the conversations and actions of the months and years

ahead that may yield a high-quality recipe for this community.

Sincerely yours,

Nicole Woolsey BiggartDean

The following people have provided valuable feedback and comments in review of this plan.

We would also like to thank Cynthia Yang for proofreading and copy-editing portions of the plan and Christina Lozanofor design and page layout assistance. Monitor Group provided final editorial and design assistance with this report. TheMonitor team was led by Matthew Le Merle and Joan Chu, who are Partners in the firm's San Francisco and Los AngelesOffices, respectively, and consisted of Marielena Gutiérrez, Ryan Kaiser and Steve Szaraz. Lily Rappoli and the DesignStudio at the Monitor Group illustrated, designed and created the layout of this report.

Gussie R. CurranUC Biotechnology Research& EducationProgram

Gregory S. Davis

Joan Dean

Todd J. Feinberg

Patty GaramendiState of California, Business, Transportationand Housing Agency

Oleg KaganovichSARTA

Judy KjelstromUC Davis Biotechnology Program

Deb MatsumatoUC Davis CONNECT

Nora Moore Jimenez UC Davis CONNECT

Jesse Szeto

Tricia Valenzuela

Jean WigglesworthEntrepreneur DevelopmentUC Davis CONNECT

vi SACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

We would like to thank the following people for their assistance in the organization of this meeting.

Walid Aboul-HosnOma Medical, Inc.

Roger AkersAkers Capital, LLC

Nordine CheikhMonsanto Calgene LLC

Richard DorfDepartment of Electrical and ComputerEngineering and Graduate School ofManagement, UC Davis

Katherine FerraraDepartment of Biomedical Engineering, UC Davis

Chris GillMcClellan Technology Incubator

Jon GregoryGolden Capital Network

Todd KaufmanGenentech

Jim KitchelSacramento Angels

Barry KleinOffice of Research, UC Davis

Kit LamDivision of Hematology & Oncology, UC Davis Cancer Center

Scott LenetDFJ Frontier

Michael PalomboCity of Vacaville

Charlie Soderquist

The following people allowed us to interview them to expand their comments at the Summit.

Roger AkersAkers Capital, LLC

Nicole Woolsey BiggartGraduate School of Management, UC Davis

Sue Markland DayBay Area Bioscience Center

Chris GillMcClellan Technology Incubator

Jon Gregory Golden Capital Network

David GruberWorkforce Strategy Center

Fran KennedyEmployment Development Department, State of California

Martin KenneyDept. of Human and Community Development,UC Davis

Barry KleinOffice of Research, UC Davis

Judy KjelstromBiotechnology Program, UC Davis

David R. McGeeTechnology Business Development, UCD Medical Center and Office of Research,UC Davis

Kristan OttoEconomic Development Department, City of Sacramento

Diane RichardsCity of West Sacramento

Tom ZeidnerEconomic Development Department, City of Sacramento

ACKNOWLEDGMENTS

viiSACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

CONTENTS

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

1. Introduction: Developing the Sacramento Regional Life Sciences Cluster . . . . . . . 1

2. Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3. Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4. Intellectual Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5. Financial Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

6. Social Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

APPENDIX

Clusters of Innovation Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

viii SACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

ixEXECUTIVE SUMMARY

EXECUTIVE SUMMARY

By Andrew Hargadon, PhDAssociate Professor, UC Davis Graduate School of Management

The Sacramento Region has contributed to the global Life Sciences for more than 50 years. This impacthas traditionally built on the interaction between several critical factors—leading research institutions, adominant agricultural region, a strong history of local and international outreach, and critical research support.In addition, proximity to Bay Area Life Sciences companies and capital, the emergence of a prominentmedical center and healthcare community, and an increasing number of Life Sciences start-ups and ven-ture capital firms promise to give the region even greater impact in the future.

The potential for significant regional economic growth in the Life Sciences over the next several decadesreflects this confluence of factors. Indeed, the Sacramento region sits on the edge of transition. Much ofthe groundwork for this transition—for the development of a vigorous and competitive Life Sciencescluster in the Sacramento region—has already been laid. There are approximately 86 Life Sciencescompanies, and over 2,500 people employed at those companies throughout the region. While thesenumbers are small relative to the three mature Life Sciences regions in California—the Bay Area, SanDiego, and Los Angeles—the wide diversity of the companies in the region is encouraging. Sacramentois home to companies specializing in pharmaceutical biotech, agricultural biotech, medical devices, diag-nostics, and manufacturing.

The lifecycle of robust economic communities is long, however, and marked by different needs at dif-ferent stages. Later stages highlight the role of financial and social capital in creating sustained economicgrowth among firms and investors but in doing so downplay critical early investments. The early stagesrequire significant investments in basic research and infrastructure to develop human and intellectual cap-ital—an educated and entrepreneurial workforce and body of intellectual property located mainly inresearch institutes. The Sacramento region is transitioning from these early stages, reflecting an emergingsocial and economic community where established firms, new ventures, and investors combine to shift thelocus of innovation from research institutes into the commercial domain. This plan considers the currentstate of the Life Sciences in the Sacramento region and summarizes recommendations for moving forward.

The Challenge

Building a robust business cluster around the Life Sciences is an extremely challenging effort. Manyregions are pursuing a strategy of replicating or displacing existing clusters, despite initial studies that havefound such efforts to be costly and unsuccessful. According to Joseph Cortright, author of a BrookingsInstitution study, “Signs of Life: The Growth of Biotechnology Centers in the U.S.,” 83% of local devel-opment agencies place Life Sciences as one of their top two priorities, and 41 states have initiated LifeSciences programs. It is unlikely that such direct strategies will work.

One difficulty lies in understanding and appropriately supporting the economic and social processes bywhich a Life Sciences cluster evolves from a loose agglomeration of research efforts to a tightly knit region-al economy. Replicating the features that distinguish today’s Life Sciences clusters (e.g., the Bay Area, San

Diego, and Boston) will not be as effective as identifying the appropriate measures for the Sacramentoregion’s current stage of development and emerging technological and market opportunities. Theingredients of relatively mature Life Sciences clusters (e.g., a large number of start-ups, access to ven-ture capital, and strong entrepreneurial networks) cannot simply be identified and recreated. Thenotable components of any one stage often recede into the background in later stages as others take amore prominent role. This plan considers the current needs of the region within a framework of theoverall lifecycle of evolving economic clusters.

Another difficulty lies in attempting to replicate the existing focus and competencies of establishedclusters. The cultivation of new regional advantages requires exploiting new scientific and technical break-throughs that fall outside traditional boundaries. Fortunately, such breakthroughs tend to take place at theborders between industries or fields, where emerging technologies and markets create new commercialopportunities. The Sacramento region is well positioned to exploit the diffusion of Life Sciences tech-nologies and techniques into relatively untapped markets in which it holds a leading position. This planconsiders how this position gives the region unique advantages that can be used to create a Life Sciencescluster distinct from others.

Finally, while the Sacramento region holds considerable potential, it remains a relatively fragmented setof communities involved in disparate aspects of Life Sciences research and commercial ventures. Whilesuch diversity makes it difficult to develop the tightly integrated social networks that enable the smoothflow of capital—human, intellectual, financial, and social—underlying the successful evolution of a clus-ter, a diverse Life Sciences cluster provides a more robust engine of regional economic growth than woulda highly specialized cluster. This plan concludes with recommendations for creating the dense networks—the social capital—that can foster the smooth flow of human, intellectual, and financial capital into the for-mation of new ventures and pursuit of new opportunities.

Answering the challenge of ensuring the continued growth and leadership of the Life Sciences in theSacramento region will require the coordinated efforts of a range of commercial, academic, and govern-ment agencies. This plan summarizes the contributions of participants in the 2003 Sacramento RegionLife Sciences Working Summit regarding the current state of the region and the necessary next steps.

The State of the Region

Economic communities can be considered along five distinct but interdependent attributes: their busi-ness infrastructure and their stocks of human, intellectual, financial, and social capital.

The Sacramento regional infrastructure is fundamentally sound—there is an availability of relativelyinexpensive commercial and residential real estate, a major freeway system that also provides access to thenearby Bay Area, and a strong communication network offering high-speed Internet access. The needs ofLife Sciences ventures also require wet laboratory space, and several developments are underway in WestSacramento and at the University of California, Davis, to provide such facilities for funded firms and sim-ilar incubators for early stage ventures. Support for these developments and others will be critical to therapid evolution of the Life Sciences community.

Additionally, the University and surrounding research institutes both produce and attract a highlyeducated workforce—a necessary characteristic of human capital in the Life Sciences. However, as the

x SACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

intellectual property developed within these settings spawns new commercial ventures, there will be anincreasing need for a workforce equipped with the demanding skills of Life Sciences laboratory andmanufacturing work. Addressing these emerging needs in the workforce will require increased com-munication between academic institutions, firms, and government agencies.

Within the Life Sciences, intellectual capital plays a leading role and depends upon sizable investmentsin basic research. The University of California, Davis continues to attract large investments in basicresearch from such agencies as the National Institutes of Health and the National Science Foundation.Such investments are increasing the size and scope of research institutes in the region: for example, therecently established Center for Biophotonics, Science and Technology and the M.I.N.D. Institute. Historysuggests such basic research investments are a necessary foundation on which successful Life Sciencesclusters are built. For instance, research conducted at UCSF and Stanford University in the 1960s and ’70sgenerated much of the intellectual capital that fueled commercial ventures in capital, in the form of tech-nologies and patents but also human capital, in the form of highly skilled professional and technicians.

To transfer the human and intellectual capital generated in basic research settings into the marketplace,greater levels of financial and social capital will be needed in the region.

Financial capital takes several forms—from the early investments in basic research to early and late stageventure financing. Some of this capital has come in the form of grants from government agencies direct-ed at small business innovation and technology transfer (e.g., SBIR/SBTT grants) or from similar publicinstitutions (e.g., UC Discovery grants). A small but increasing amount of venture financing, relative toestablished Life Sciences clusters, is also starting to occur. In 2002, for example, 55% of venture capitalinvestments were directed to medical device and biotechnology start-ups. It remains difficult to determinewhether the relatively small flow of financial capital into the Sacramento region reflects the lack of newventures or vice-versa. However, given the current state of the region’s Life Sciences cluster, it appears toreflect the early stages of a shift in focus from research to commercialization.

These new ventures also require the support of social capital to connect them with the disparateresources necessary to support their entrepreneurial efforts (for example, access to early stage investments,advice networks, and skilled labor). Social capital describes the network conditions that foster or impedethe combination of human, intellectual, and financial capital around new ventures. Dense connectionsbetween researchers, entrepreneurs, and investors give new startups access to the resources they need tosucceed (and make scarce resources more productive). The Sacramento region may lack the larger net-works of established regions, yet much can be done to increase the density—or connections—within theexisting network to facilitate economic growth.

The Life Sciences Strategic Action Plan

It was from within this context that the office of the Governor of California, UC Davis CONNECT,the Sacramento Regional Technology Alliance (SARTA) and many others, along with support from theGraduate School of Management at University of California, Davis, undertook the effort summarized inthis document:

To develop a coordinated and actionable Strategic Action Plan to ensure that the SacramentoRegion continues to grow and develop a leadership in Life Sciences over the next decade.

xiEXECUTIVE SUMMARY

At the Sacramento Region Life Sciences Working Summit held on September 30, 2003, in the workingsessions of many interested parties, and through the interviews and surveys conducted by the GraduateSchool of Management at UC Davis, many of the region’s leading individuals, firms, and institutions con-tributed their views to the development of this strategic action plan. The result: a set of shared values,common interests, and recognizable themes that focus on enabling the Sacramento region to continue itsevolution as a vital Life Sciences Cluster. This process resulted in a full list of recommendations, describedin detail in the following chapters and summarized in the following table.

RECOMMENDATIONS

• Regional land-use and transportation decisions should reflect and enhance the advantages of theregion’s proximity to the already well-established Life Sciences cluster of the Bay Area.

• Industry representatives should work with local and state officials to define the infrastructureneeds of the industry, identify and target geographic particular zones for growth, and develop pub-lic support for development of enterprise zones and incubators for start-up and young LifeSciences companies funded by public investment with financial and management assistance fromthe private sector.

• K-12, College and University, and state officials should undertake a collaborative effort to promoteLife Sciences education and employment opportunities.

• Current and future Life Sciences employment needs by skill category should be established andcommunicated in order to drive educational and training activity.

• Regional academic centers should be designated to spearhead statewide efforts to expand collabo-ration between state community colleges, universities and industry to develop more clinical sci-ence and laboratory programs.

• Regional leaders should publicize the presence and success of current Life Sciences firms in orderto attract needed human and financial capital to the region.

• University, industry, and local governments should aggressively pursue the development ofresearch institutes similar to the Lawrence Livermore National Laboratories, the Center forBiophotonics, Science and Technology, and the M.I.N.D. Institute.

• Research institutions must facilitate increased communication and collaboration betweenresearchers and potential industry partners in order to ensure the transfer of technology fromresearch to commercialization.

• University officials should develop a clear strategy and priorities for commercializing the intellec-tual capital developed under their auspices that reflect the necessary balance between maximizingthe returns of any one license agreement and fostering regional economic growth.

• Regional leaders from industry, academia, and government should, individually and collectively,construct the dense social networks that facilitate the smooth flow of human, intellectual, andfinancial capital towards new ventures and emerging opportunities.

• Regional research institutes, and particularly the University of California, Davis, should focusefforts on supporting the entrepreneurial process through outreach, education, and introduction tothe existing Life Sciences community.

• Dialog between the Life Sciences industry and government should remain a high priority: thegovernment should appoint a senior Administration official as a liaison with the Life Sciencesindustry and the industry should establish a CEO advisory group for Life Sciences to present ashared industry voice.

xii SACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

This chapter provides an explanation of the LifeSciences cluster as an evolving regional economiccommunity of growing importance to the Sacramentoarea. We outline the emerging trends shaping the evo-lution of this community and frame a strategy forreaching the next stage of its development.

Clusters are key factors in the economic successand competitive advantage of a region. Clusters, asdefined by Harvard University Professor andMonitor Group Partner and Co-Founder MichaelPorter, are considered to be large, geographically con-centrated groups of interrelated companies and theirsupplier networks that sometimes compete andsometimes collaborate.2 Clusters are distinct fromindustries and markets because participants may often compete in different markets and be officiallyassociated with different industries. These diverse organizations and institutions are linked in a cluster,however, because they share a range of critical social and economic relationships that are mutually sup-portive (see Exhibit 1). The theory underlying this notion of a “cluster of innovation” derives from anexamination of the critical factors necessary for fostering innovation, competition and growth in a widevariety of regions and industries. The theory is described more fully in the Appendix.

1CHAPTER 1: INTRO—DEVELOPING THE SACRAMENTO REGIONAL LIFE SCIENCES CLUSTER

1INTRODUCTION: DEVELOPING THE SACRAMENTO REGIONAL LIFE SCIENCES CLUSTER

By Paul Yu-Yang

Exhibit 1: Life Sciences Cluster Definition

Over the last four decades, Silicon Valley has generated

high-technology firms which have become icons of the

region’s success and have defined entirely new industries.

As a region, Silicon Valley embodies Joseph Schumpeter’s

ideas about technical innovations creating “new economic

spaces,” but its most striking feature is that these new

spaces have been created repeatedly…. If the world is

entering a New Economy, then one would expect other

regions to experience the development of Silicon

Valley-like institutions.1

- Martin Kenney, Professor of Community Development, UC Davis

The Life Sciences cluster, for example, describes the community of organizations and institutions thatincludes firms in pharmaceuticals, biotechnology, medical devices, agricultural biotechnology, diagnostics,and medical information technology. This community also includes professional service firms such as lawfirms, real estate developers, and venture capital firms with experience working with Life Sciences firms.In addition, due to the central role of basic and applied research through academic and private researchinstitutions, funding agencies play critical roles, as do industry and regional development associations.

This discussion on cluster development will serve as a framework for establishing a strategic plan for theSacramento region.

Patterns in the Emergence of High Technology Clusters

This chapter reviews well-known regions that have succeeded in developing technology clusters anddiscusses the patterns that are found throughout their historical development.

Companies that market new technologies, if successful, can significantly impact society. If the impact islarge enough, as is often the case with high tech companies, then entire new industries that significantlyimpact a region’s economy are born. Over time these industries can become clusters. High tech indus-tries can be defined as industries that spend large amounts of revenue on research and developmentand that employ a relatively large number of technologically oriented employees such as scientists,engineers, mathematicians, programmers, etc.3 All Life Sciences industry companies can be consid-ered high tech companies.

The Life Sciences industry consists of distinct, though sometimes related, industry segments. Variousregions in the United States have developed successful clusters in one or more of these categories. TheBay Area is not only famous for pioneering semiconductor technologies but for also beginning thebiotechnology age with the success of Cetus and Genentech. By examining regions with notable high techindustries, patterns in cluster development can be found. The regions examined in this section are the BayArea, San Diego, Austin, Seattle, and the Twin Cities regions. Exhibit 2 summarizes the stages each regionwent through before becoming a mature cluster. Additionally, the exhibit highlights significant other fac-tors attributable to cluster success. Each region will be briefly summarized in the next few paragraphs.

The Bay Area/Silicon Valley earned its namesake by establishing itself as a world-leading center in semi-conductor technology. The family tree of companies4 began with Shockley Labs in 1955. Gordon Moore,along with Robert Noyce and six others, left Shockley and went to Fairchild Semiconductor where theyformed a collective group of engineers who laid the foundation for the future development of semicon-ductor chip design. This served as the basis for the waves of companies that emerged years later to formthe core cluster of chip manufacturers in the Bay Area.

The Development of Clusters

The emergence of the cluster can be represented by four phases. We describe these phases as theresearch, entrepreneurial, critical mass, and mature phases (see Exhibit 3). Phases appear successive butone does not necessarily displace the other, e.g., the research phase continues throughout the entrepre-neurial and critical mass phases. Research has to do with basic science and engineering research. Thisoccurs in universities, research institutes, and companies. The research phase is continuous and overlap-ping, and it serves as constant input for the other phases. High tech research is often compelling enoughfor a handful of scientists and engineers who pioneer the cutting edge technologies to bring these conceptsto market.

2 SACRAMENTO REGION LIFE SCIENCES STRATEGIC PLAN: Taking Action for Tomorrow

The entrepreneurial stage involves this subpopulation of scientists and engineers who are in turn oftencombined with business people. This phase results in a bloom of start up companies that compete witheach other to bring the new technology to market. These companies can go on to become successful,medium-sized companies that are like “base hits.” A strong, healthy cluster can be established on the basisof base hits. Another result could be a “homerun” success. Examples of well-known homerun companiesare Intel, Genentech, Chiron, Guidant, and Oracle. A region that has more startup companies competingin a given technology has a higher likelihood of producing a homerun.


Exhibit 2: Stages in the Emergence of Technology Cluster

Exhibit 3: Phases of Cluster Development

The next stage is critical mass. The formation of a critical mass of companies that are committed to thesuccessful deployment of certain technology is a necessary condition for cluster development. If the tech-nology is truly a breakthrough one, as in the case of the semiconductor transistor chip, then it serves as awellspring for interrelated technologies to emerge. The progression can be natural as employees at thewellspring company see new possibilities for the technology. These employees find niches and specialtiesthat in turn can become wellsprings for other new ideas and products. The microcomputer industry(Osborne, IBM, Apple, etc.) emerged as a closely related industry to the chip industry. The microcom-puter industry gave rise to peripherals, workstations, and network computing (Seagate, Sun, SiliconGraphics, Cisco).

The critical mass stage blurs into the final mature stage as interrelated companies form complex net-works of partnerships and suppliers. Startups in this stage, particularly in biotechnology, often serve thepurpose of outsourced R&D for large corporations who partner with or fund these companies. In the BayArea, this is one of the models for research-intensive industries that have not yet had products becomecommodities.

This cluster development cycle has played itself out in other regions as well. San Diego has had successin biotechnology as well as wireless telecommunications. Hybritech alumni are credited with around 40startups in the San Diego region. QUALCOMM’s lineage can be traced back to Linkabit and serves as awellspring and anchor for the telecom growth.

Seattle’s long history of medical device development starting with ATL Ultrasound and Physio-Controlin the 1950s has resulted in a multitude of medical imaging and cardio-related startups. Seattle’s biotechgrowth traces back to the 1981 founding of Immunex. Immunex saw the potential of using recombinantDNA technology to treat immunological diseases.

Other examples vary slightly in the evolution of regional cluster formation. Austin started out with apublic sector economy as did many other regions. Early on, the city attracted and formed an electronicsmanufacturing base. Later, Austin was able to boost R&D capacity by leveraging its manufacturing sectorto attract consortia and a few large companies’ R&D departments. Austin has become successful in vari-ety of high tech industries.

The final example involves the Bay Area’s birth of biotechnology. The success of Genentech began witha partnership that leveraged the financial services network of the semiconductor industry with research ingenetic engineering and biochemistry. This cross-industry relationship kick-started a billion dollarwellspring industry which arguably would have more appropriately started in partnership with largepharmaceutical corporations. This example belies the underlying entrepreneurial network and culturethat needs to exist within a region to make possible cluster and cross cluster development.7


Other factors that were important to cluster formation in the case studies are summarized inExhibit 4. Some regions had key leaders who connected resources that attracted more research funding,helped form new companies, or encouraged entrepreneurship. Research and personnel from universi-ties and institutions, industry consortia, or large companies were also critical to regional success.

Measuring Regional Innovation Capacity

The potential of the Sacramento region is evident in rankings given by the public policy organizations,the Milken Institute and the Progressive Policy Institute. These rankings are fairly broad and a briefexamination, though not specific to the Life Sciences industries, will impart confidence in the region’srelative strength in innovative capacity. The first set of rankings below is from the Milken Institute’s BestPerforming Cities. The Milken Institute’s Best Performing Cities 2003 study was based on regional com-parisons of the 200 largest metropolitan areas. Factors that went into the rankings included a metro’sentrepreneurship, capital access, human/creative capital, innovation capacity, and globalization attributes.


Exhibit 4: Key Factors in Cluster Development

Sacramento placed in the top ten percent of the 200 largest metropolitan areas in the United States. Thenext study, the America’s Health Care Economy, utilized the Milken Institute’s Health Pole Index. Theindex is a measure of a region’s healthcare concentration and mix with a national perspective. Healthcareis broadly defined to include drugs, medical instruments and supplies, health practitioners’ offices, hos-pitals, labs, and services. Here, Sacramento finished in the top third of the 200 largest metro areas.Exhibit 5 summarizes the rankings that were studied.

Rankings from the Public Policy Institute’s Technology Project give emphasis to regions that have inte-grated the digital economy into regional infrastructure. Most of the key factors measured are relevant tothe Life Sciences industries as well. The Sacramento metro area finished in the top ten percent of the 261metro areas studied. Optimistically speaking, these rankings illustrate the Sacramento metro area’s rela-tive strength and capacity for innovation.

Building the Critical Mass for Cluster Formation

The Sacramento region houses a considerable number of Life Sciences companies.11 For the purposesof this plan, the counties that define the Sacramento region are El Dorado, Placer, Sacramento, Solano,Sutter, Yolo, and Yuba counties. Most of the companies in the Sacramento region are below 100 employ-ees in size (see Exhibit 6).


Exhibit 5: Various Rankings Related to Innovation and Life Science

Source: Sacramento Life Sciences Action Plan Team Analysis

Solano County has become a mini-manufacturing cluster for large Bay Area biotechnology and drugdelivery corporations such as Genentech, Chiron, and ALZA.

The task of pushing the Sacramento region to the next level will be challenging. A recent assessmentof biomedical clusters in California by PriceWaterhouseCoopers showed that Sacramento is behind com-pared to other regions in California (see Exhibit 7). It is important to note that the Bay Area, Los Angeles,Orange County, and San Diego regions have mature clusters in one or more Life Sciences segments.

Relative to the more mature clusters listed in the previous exhibit, the Sacramento region needs toincrease the number of companies by three to seven fold and employees by six to thirteen fold in order tolook more like a mature cluster.


Exhibit 6: Distribution of Company Sizes

Source: California Technology, Trade and Commerce Agency

Exhibit 7: California Biomedical Clusters12

Attendees of the Working Summit held in September 2003 were surveyed to assess the strengths andweaknesses of the region. 46 people responded to over twenty questions that were designed to sampleopinions in business climate, workforce, and regional cluster strength (see Exhibit 8).


Exhibit 8: Survey Results from Participants of the Life Sciences Working Summit13

In general, local perceptions demonstrate a shared confidence in the potential of the region. Businesscosts and well-trained workforce were generally regarded as very favorable. Questions related to financ-ing and commercializing technology were not regarded as high. Furthermore, questions related to clusterspecialization did not really register at all. However, local institutions that support and develop companiesare generally regarded as helpful.

Regional perceptions serve to reinforce other data mentioned throughout the plan that point to theSacramento region as a great place to live and work but a region that does not have a well developed LifeSciences cluster. Strong negative reaction occurred in the areas of local financial capital and efficient tech-nology transfer. The lack of local capital has not stopped companies from obtaining monies through otherresources. The lack of an efficient technology transfer process is a significant issue for local companiesparticularly because the Life Sciences industry is so strongly tied to technology. The issue is criticallyimportant with regards to Life Sciences startups.

Life Sciences StartupsThe formation of new Life Sciences companies must happen for the region to develop into a cluster.

A critical mass of companies is needed, and proper support needs to be given to particular Life Sciencessectors. Bottlenecks in the development cycle of startups need to be addressed.

The Sacramento Valley has industry strengths in other areas as telecommunications, defense, agricul-ture, wine and real estate. These industries have much different constraints and timelines than the LifeSciences industry. These differences must be understood for effective decisions about regional resourcesto support a Life Sciences cluster to be made.

The startup process needs capital: human, intellectual, financial, and social. Key to sustained success isbuilding the communities that support and supplement startup efforts. As communities grow around newtechnologies, they create the necessary social capital that sustains them. The process is an integration ofhuman, intellectual, financial, and social capital. All capital exists to a certain extent at every stage of a start-up and the boundaries between each can blur as well.

Although there are differences across the pharmaceuticals, biotechnology, agricultural biotechnology,medical devices, and diagnostics sectors, the startup process is similar. The Life Sciences new ventureprocess generally involves the following steps pictured in Exhibit 9.


Exhibit 9: Stages in a Life Sciences Startup

Variations of this theme occur within each Life Sciences industry segment (see Exhibit 10). The maincauses of variation are a result of differences in regulatory and manufacturing practices. Regulatoryrequirements control what a company must do to legally market a product in the United States andEurope. For biotech, this includes pre-clinical testing, human clinical trials, and review with the Food andDrug Administration. Medical devices and diagnostics are under the jurisdiction of the FDA, as well.AgBio is regulated by the United Stated Department of Agriculture and sometimes also the EPA and FDA.

Moving through the stages requires shifts in management style and company culture. The early stagesof a startup are characterized by research and development and are generally staffed by scientists. Thelargest shift occurs when the startup evolves into a multifunctional organization that includes regulatoryaffairs and sales and manufacturing concerns.

The Life Sciences industry has its own distinctions. There can be significant capital investments for LifeSciences companies to bring products to market. For example, the cost of manufacturing facilitiesespecially current good manufacturing practices (cGMP) facilities is very high. In addition the cost ofintellectual property and in-licensing can be very expensive and is frequently a “capitalized” asset.

Ingredients for an Innovation Economy and Finding the Recipe for Success

While creating a Silicon Valley-type cluster is desirable, some argue Silicon Valley cannot be duplicated.14

Moreover, caution is advised for regions looking to simply clone the structure of a cluster based on a setof identified ingredients in a mature cluster.15 As Saxenian noted, the recipe, in addition to the ingredients,is crucial.16

Various papers and reports listed in Exhibit 11 were examined to derive a broad set of innovationgrowth success factors. This kind of information is abundant since many regions are trying to accomplishthe same. Even successful regions are undergoing self-examination to ensure continued innovative capac-ity and concomitantly regional competitive advantage.


Exhibit 10: Life Sciences Startup Stages and Differences

For the purposes of this strategic plan, the various success factors that produce innovative regions havebeen summarized into five parts and are depicted graphically in Exhibit 12. These parts relate to doingbusiness and the people and ideas that make up businesses:

Business factors – infrastructure, environment, cost of doing business, incentives• Human capital• Intellectual capital• Financial capital• Social capital

Each factor will be discussed in greater detail in the body of this plan. All factors must be considered inorder to develop a strong innovation capacity in the region.

Chapter 2 will discuss key business infrastructure factors that relate to doing business. Business factorsare necessary for most businesses, not just Life Sciences companies, to succeed and grow. Business factorsserve as a backdrop to companies and industries as they grow.


Exhibit 11: Summary of Various Success Factors


Chapters 3, 4, and 5 will cover the next three factors—human, intellectual, and financial capital. Theseserve as the raw material for the innovation process. In general, the quality of people, the flow of newideas, and access to money are vital in building industries where innovation is critical.

Last, Chapter 6 will evaluate what can be done in terms of social capital. Social capital is a determiningfactor for a region’s sustained success as a cluster. In contrasting the Silicon Valley to Route 128, Saxenianconcluded that social aspects of the business community such as social and professional networks, attitudestowards risk-taking, and loose industry structure were important differences.


Exhibit 12: Key Aspects in Building Innovation Capacity


The business environment refers to the climate in which all business takes place. It includes those areasthat significantly impact the ability of businesses to grow and succeed, such as the physical infrastructure,the regulatory climate, the local tax structure, and the information infrastructure of the region. The stategovernment determines much of the business environment while federal agencies and local governmentsheavily influence other aspects.

The business environment can be seen shaping Genentech’s decision to locate in the region.

GENENTECH – A CASE STUDY IN BUSINESS ENVIRONMENT FACTORS

Selecting a biotech manufacturing site is a time consuming and expensive process in light ofthe cost of construction and relocation costs. The Genentech decision to site a manufacturingplant in Vacaville (Solano County) is a good illustration of the confluence of various importantfactors in site selection.

• Business environment. “A significant factor in our decision to locate in Vacavillewas the professional city management that made clear from the start it was willingto work with us to get things done. This local government is an ally, not a hindrance or an obstacle. In an industry where delays can mean millions in lostsales, this is in itself a very significant financial incentive.” - Frank Jackson,General Manager of Vacaville facility.17 The town’s welcoming attitude manifested infast-track permits service, a package of financial incentives, and a promise to rationthe company’s water only during an emergency.

• Location. Vacaville’s proximity to the South San Francisco company headquartersmakes it easy for scientists who developed the drugs maintain oversight of large-scale production.

• Affordability. Open, affordable space was available for facility construction and futureexpansion. In all, Genentech has 100 acres in Vacaville, but it has developed only30 so far.18 Also, affordable housing attracts and helps retain employees. The com-pany reports that it experiences only 4% turnover at its Vacaville facility.19

• Workforce. The company has access to a skilled pool of production workforce, aswell as engineering talent from nearby major universities, including UC Davis.

13CHAPTER 2: BUSINESS ENVIRONMENT

2BUSINESS ENVIRONMENT

By Gabriela Lee

The company also takes advantage of the great utilities infrastructure. The city of Vacaville isextremely well equipped to continue to provide water to industry even through a protracteddrought, as it has three independent sources of water supply. Also, its wastewater treatmentplant is currently undergoing expansion from a dry weather flow capacity of 10 to 15 milliongallons per day. However, more recent wastewater discharge permit limits from theEnvironmental Protection Agency will require installation of extremely costly advanced waste-water treatment facilities, which will triple sewer fees and quadruple connection fees.Producers of large volumes of wastewater such as Genentech will be greatly affected by thenew regulations.

Tax Policy

The state of California is widely recognized as a global leader in Life Sciences in general and biotech-nology in particular. State government has actively supported the industry’s growth and developmentthrough legislative and fiscal policies designed to strengthen both industry companies and state-fundedacademic institutions.

Current status and needs

Specific tax policy incentives that apply in the state of California are listed below.20

• 15% in-house and 24% outsourced research and development tax credits. For in-house research,businesses may elect an alternative incremental research expense credit of varying percentagesinstead of the 15% tax credit. Corporate taxpayers are allowed a credit of 24% for basic outsourcedR&D, for research conducted within California.

• Net Operating Loss (NOL) carryover. Biotechnology and biopharmaceutical companies areallowed preferential treatment on their NOLs. The entire amount of NOL may be carried for-ward for up to 8 years. The normal NOL carry forward is 60% for taxable and income yearsbeginning on or after January 1, 2002 and before January 1, 2004; and 65% for years beginningafter January 1, 2004.

• 7% job-creation tax creditHowever, one of the most successful incentives that helped offset the higher costs of doing business in

California, the Manufacturers’ Investment Credit (MIC), expired in January 2004. Removal of the MICresults in a tax increase for manufacturers in California, which might be an additional reason for compa-nies to abandon this state for more hospitable places to do business in the future. Efforts to permanentlyextend the MIC were unsuccessful.

RECOMMENDATIONS

Research indicates “…public policy aimed at innovation must focus not only on R&D, but also on com-plementary assets, as well as the underlying infrastructure. If government decides to stimulate innovation,it would seem important to clear away barriers that impede the development of complementary assets thattend to be specialized or cospecialized to innovation. To fail to do so will cause an unnecessary large por-tion of the profits from innovation to flow to imitators and other competitors. If these firms lie beyond


one’s national borders, there are obvious implications for the internal distribution of income.”21

Complementary assets are defined as capabilities or assets, such as marketing, competitive manufacturing,and after-sale support, which must be used in conjunction with technical know-how for the successfulcommercialization of an innovation. Specialized assets are those where there is unilateral dependencebetween the innovation and the complementary asset. Cospecialized assets are those for which there is abilateral dependence.

To encourage additional companies to locate in California and to ensure that existing businesses do notleave the state, the government must support both R&D and the development of complementary assets.Government should consider steps like changing the apportionment formula for corporate income tax,harmonizing the NOL rules with federal tax law (which provides a carryover of up to 20 years), re-estab-lishing the Manufacturer’s Tax Credit for new and expanding Life Sciences investments with a tie to jobcreation, and allowing for large Life Sciences companies (either headquartered in California or employinga large number of Californians) to purchase discounted tax credits and deductions from small research anddevelopment firms. As discussed in detail throughout this plan, various factors contribute to Sacramentoregion’s potential to become a manufacturing-oriented cluster for Life Sciences companies located inNorthern California.

Regulatory Climate

The regulatory climate deals with all of the rules, policies and requirements that government places onbusiness in order to meet various objectives. These include environmental regulation and permits,building permits, land zoning, unemployment, disability, ergonomic requirements, workplace safety,and compliance in a number of specialized areas. Industry and government should work together toeliminate redundancy and duplication between state and federal agencies that considerably increases thecost of doing business by adding direct regulatory and indirect administrative costs. For example, stateand federal agencies like Cal-OSHA and OSHA, Cal-EPA and EPA (especially the environmentalreview process) and other agencies like the Nuclear Regulatory Agency should review and harmonizetheir regulatory processes.

The Life Sciences communityshould inform local buildingand planning officials about thespecial needs of the industry,especially biotech companies,and lobby for permitting facili-ties for Life Sciences projects.

Incentives

Because of their sophisticationand high knowledge content,biotechnology companies stronglyfavor locating their production anddistribution operations as close aspossible to the R&D and othercritical support functions. The


“Under a very competitive climate, the state of California should create a

more corporate-friendly environment, through financial incentives like tax

breaks and utilities reimbursements or credits. Although California is a

leader in Life Sciences in general and biotechnology in particular, some

other states are providing more incentives. It would be interesting to find

out how California compares with other states in this regard. Also, a study

that would summarize the specific reasons leading to businesses failing

and businesses leaving the state (be they biotech, life science, or other

companies) would be useful in pointing out real factors that contribute to

companies staying in or leaving California.”

- Nordine Cheikh, Site Leader, Monsanto Calgene LLC.

Sacramento region should capitalize on this and actively solicit local and Bay Area companies to locate theirmanufacturing and distribution facilities here.

Current Status and Needs

Currently, Sacramento Area Commerce and Trade Organization (SACTO) is the regional marketingorganization in the Greater Sacramento Area responsible for business recruitment from throughout theworld. SACTO publishes and distributes marketing materials and data, and encourages firms to locate inthe region by facilitating their site selection needs. Also, each city’s Economic Development Departmentplays an active role in marketing and facilitating private investment within their areas of jurisdiction. Otherorganizations dedicated to helping startup companies, by giving entrepreneurs access to mentors, peers,resources, education, and information, are business incubators. In the Sacramento region for example,McClellan Technology Incubator (MTI) is a non-profit organization established as part of an economicstimulus plan to assist emerging businesses in the technology sector with an emphasis on job creation forthe region. Its mission is to accelerate the formation, growth and success of sustainable technology-basedbusinesses in the Sacramento region, by providing an extensive list of services to its member companies:

business development, venture feedback, execu-tive roundtable, technology commercializationforum, advisory and coaching programs, intro-ductions to MTI advisors, entrepreneur coaching,progress reviews, IT services, business studies,and PR. MTI is currently in the process of raisingmoney to finance the refurbishing of 24,000square feet of wet lab space. The combination ofspecialized space, mentoring and funding fromthe incubator, and top scientific and engineeringtalent from UC Davis increases the chances ofsuccessful formation of new ventures in theSacramento region.

Regional Infrastructure

A well-developed regional infrastructure forms the foundation for individual and collective quality oflife and is a critical enabling factor for the economic development of a region. The Sacramento Valley mustbe competitive with other regions in California and the US from many perspectives, including infrastruc-ture, in order to keep existing Life Sciences companies and to attract additional ones. More states than everare gambling millions of dollars on a bet that biotechnology can be their next job engine, which makes fora tight competition. In California, the Sacramento Valley competes but also collaborates with the Bay Areain attracting and keeping Life Sciences companies. Compared with the Bay Area, which is undeniably aleader in global Life Sciences, the Sacramento Valley offers more affordable commercial and residential realestate and seismic stability.

The Sacramento region has the advantage of proximity to large markets. The entire state of Californiais within one day’s driving distance. Situated at the hub of several north/south and east/west highways,


The regional infrastructure refers to the underlying foundation

of physical and information resources required for individual

and business activities to occur. The physical infrastructure

includes transportation systems (roads, highways, airports,

railroads), land, and utilities (water, power). The information

infrastructure refers to systems that allow people to

communicate with one another by telephone, computer,

and other information transfer devices.

along with a deep-water port, an international airport, and transcontinental rail lines, the area enjoys con-siderable location advantages.

The following sections describe the status of the existing physical and information infrastructure, alongwith the concerns expressed by industry, academia, and government representatives present at theSacramento Region Life Sciences Working Summit in September 2003. It includes their proposed rec-ommendations as well as tabulated results from a survey sent to all participants of the Summit.Transportation and information infrastructure support the movement of people, goods, and informationthrough the region, and are critical to the flow of human capital, intellectual capital, and products. Alongwith transportation, the concern for land and utilities has to do with the availability of space for business-es and housing for the region’s workforce.

Because many Life Sciences companies require specialized facilities, the development of the necessaryregional infrastructure poses more challenges than in the case of other industries. Issues of growth mustbe addressed before they become overwhelming. To ensure that future infrastructure planning takes intoaccount the development of the Life Sciences cluster in the Sacramento Valley, the specific requirementsof the industry need to be communicated to the decision-makers. However, in order to get the attentionof government, the region’s Life Sciences community ought to make a compelling case regarding the eco-nomic development potential of this industry.

Transportation

Long-term economic growth depends on having adequate transportation systems that enable the efficientand reliable movement of people and goods throughout the region. While it is true that the transportationinfrastructure requirements apply to the Sacramento Valley generally, not just to the Life Sciences cluster,this industry should communicate their needs to the appropriate authorities, such as the Sacramento AreaCouncil of Governments (SACOG), to ensure that they are considered in future planning. SACOG coor-dinates transportation planning and funding for the Sacramento region.


The region’s current transportation infrastructure includes: local streets and highways, bridges, airports,transit routes (Capitol Corridor Rail, Bus Transit Surface Area, Light Rail), one commercial shipping port,and regional bicycle and pedestrian trails. Low density suburban patterns mean people travel mostly byautomobile: 50% of trips possess single passengers, 43% drive with two or more occupants, and only 1%of trips are by transit, with transit use reach-ing 20% in downtown Sacramento duringcommute hours.22

A majority (69%) of Summit surveyrespondents agreed that the overall quality oftransportation is very good relative to otherregions. By comparison, 58% of Bay Arearespondents expressed concern that the qual-ity of transportation is one of the five mostimportant future threats to their businesses.23

However, if the transportation infrastructurecurrently constitutes an advantage for


“The lack of convenient public transport between UC Davis and

McClellan Park has been raised to me as an obstacle for UC

Davis faculty members and graduates considering launching

startup companies. To overcome this obstacle, and until improve-

ments are implemented, we are exploring a number of creative

options, including a collaboration with SMUD on car sharing

scheme using electric vehicles.”

- Chris Gill, Executive Director, McClellan Technology Incubator.

Sacramento compared with the Bay Area, it will take a sustained effort to keep it so. According to SACOG,population in the Sacramento region (El Dorado, Placer, Yolo, Yuba, Sacramento, and Sutter counties) isexpected to grow by almost 50%, from 1.89 million in 2000 to 2.8 million in 2025, and with that a 54%increase in travel is forecasted, unless land development proceeds differently than it has in the past. Trafficcongestion is already considered a big problem by 56% of the respondents to a survey given by the PublicPolicy Institute of California and Great Valley Center.24 The distribution of the expected growth is the mostimportant issue for transportation.

The Summit participants noted that at this time, the existing ground transportation system is inadequateto support the growth contemplated for the Life Sciences cluster, both within the region and along the BayArea-Sacramento corridor.

RECOMMENDATIONS

• Alternative means of transportation for the area’s workforce must be investigated, with emphasison improving public transportation, which would relieve traffic congestion.

• Land use decisions should be made in such a way as to take advantage of the existing transporta-tion system and other infrastructure. For example, manufacturing companies could locate alongthe Bay Area-Sacramento corridor, where housing for their workforce would be affordable, inorder to minimize the additional strain placed on the existing transportation infrastructure.

Land

The availability of land for building commercial and residential facilities is one of the infrastructure pil-lars on which the development of the Life Sciences cluster in the Sacramento Valley rests.


Companies have different needs for specialized facilities, depending on company type and the stage oftheir development cycle. Medical device, instrumentation, and biotech companies that approach commer-cialization need affordable manufacturing capabilities and significant infrastructure support, such as reliablewater and appropriate waste water treatment facilities, while pharmaceutical and biotech start-ups wantaffordable wet lab space.

When deciding where to build manufacturing plants, many Life Sciences companies value proximity totheir R&D facilities. They also tend to gather in clusters, in order to take advantage of the infrastructurethat is already in place. Knowing this, specific locations may be targeted for development, to provide incen-tives for companies to build manufacturing facilities in these areas. Such a strategy would direct industrygrowth in such a way as to make it less reliant on the regional transport infrastructure and its limitations(e.g., infill development).

Southport Business Park of West Sacramento may become a good example of such a target site. Locatednear the intersections of Interstate 80 (coast to coast transportation) and Interstate 5 (border to bordertransportation), across from the port of Sacramento, Southport Business Park is one of the largest master-planned business parks in the country, and offers space for various uses, from office and residential to


warehouse and manufacturing. Companies locating within this zone are offered various incentives, suchas sales and use tax credit, net operating loss carryovers, manufacturer’s investment tax credit, and otheradvantages. Over 1.5 million square feet are either completed or under construction, from the total of 10million square feet planned.25

The cost of real estate is one of the greatest advantages that the Sacramento region offers compared tothe neighboring Bay Area. Specifically, the average industrial land for a 10 acre site costs $1-$ per squarefoot in the Southport/Sacramento area, versus $40-$50 per square foot in San Jose/Bay Area.26 For R&D,the lease rates are $0.60-$1.00 per square foot in Sacramento area, compared with $4-$5 per square foot inthe Bay Area.

Currently, developers do not have incentives to build Life Science-focused facilities. The necessaryamenities are highly specialized and expensive to build. Moreover, Life Sciences companies are well-known for the extended length of time it takes until they become profitable, and as such they representhigh risk investments. To facilitate the development of commercial space for start-up and young LifeSciences companies, the Bay Area Life Sciences Strategic Action Plan27 proposes the creation of public-pri-vate partnerships that could help spread the development risk between government and the private sector.Other means of reducing the risks of development are the introduction of tenant security enhancementsor developer tax credits. Similar incentives could increase the likelihood that landlords would accept short-term leases or offer smaller parcels of space to early-stage companies.

The availability of affordable housing for its workforce is another requirement for ensuring the growthand development of the Life Sciences cluster. Housing affordability for employees was considered impor-tant or very important by 78% of the Summit survey respondents. When compared to California’s othermajor metropolitan areas, the prices of new homes in the Sacramento region are still considered veryaffordable. However, robust population growth and Bay Area transplants add substantial demand forhousing, which leads to price increases. For example, the number of single-family homes sold increasedan average of 26%, and the median price increased 15% on average in the Sacramento Valley during theyear ended in September 2003.28 According to California Association of Realtors, the median price for asingle-family home in Sacramento was $ 257,990 in October 2003, compared to $ 566,870 in SanFrancisco Bay.29 SACTO and individual cities’ economic development departments should increase theindustry awareness of Sacramento region’s lower real estate costs within industry circles, in order toleverage this great advantage.

RECOMMENDATIONS

• Representatives of the Life Sciences business community should meet with legislators to identifyand target geographic zones for growth, based on companies’ needs and stage of their life cycle(R&D, clinical development, manufacturing, commercialization). The local and state governments,in collaboration with industry, can then create a set of uniform procedures and standards thatfacilitate planning, zoning, and permitting in these areas, leading to an effective commercial infra-structure for both established and startup companies. The creation of an electronic index ofcommercial real estate would further aid these investment attraction efforts.


• The Life Sciences community should also support initiatives that encourage smart growth plan-ning, possibly through the intermediation of a trade organization that would communicate itsinterests to the appropriate entities. Smart growth invests time and resources in restoring already-built environments in central cities and older suburbs, optimizing the mix of housing, commercial,and retail space. It also preserves open space and many other environmental amenities. Planningfor smart growth and infill development can and should leverage existing resources. For example,manufacturing facilities should be built where affordable housing is available, or in areas where thenecessary infrastructure already exists.

• To avoid the NIMBY (“Not in My Backyard”) syndrome, the Life Sciences industry and legislatorsshould continuously educate the public and ensure community support.

Utilities

The utility infrastructure includes power plants; sewage treatment facilities; and electrical power, natu-ral gas, and water distribution systems. The utility distribution companies in the Sacramento Valley arePacific Gas & Electric (PG&E), Roseville Electric, Sierra Pacific Power, and Sacramento Municipal UtilityDistrict (SMUD). Their services support the economic growth of the region.


At this time, the electricity markets appear relatively stable. According to the California EnergyCommission, Californians pay, on average, the fifth highest rates in the nation, which is one of the factorsthat contributes to a high cost of doing business in this state, including the Sacramento Valley. Under aver-age conditions, California’s electricity generation system has adequate supplies to meet demand for at leastthe next six years.30 The state is taking steps to reduce the electricity demand by implementing new effi-ciency standards and programs, dynamic pricing, and aggressively developing renewable energy resources.56% of the Summit survey respondents identified reliable power availability as an important or veryimportant infrastructure element for their companies over the next 5-7 years.

In the Sacramento area, the Department of Utilities provides water for drinking, household use, firesuppression, landscaping, commercial and industrial use. 85% of this water comes from the Sacramentoand American rivers, and the remaining 15% is well water.

Sewage water from this region is currently routed to the Sacramento Regional County Treatment Plantwhere it receives primary and secondary treatment before it is discharged to the Sacramento River. InSolano County, Vacaville operates the Easterly Wastewater Treatment Plant.

RECOMMENDATIONS

• The Life Sciences industry requires stable, affordable, and reliable electricity, water, and waste-water disposal. The industry also needs acceptable solutions for the disposal of radioactive waste.A leadership group representing the Life Sciences businesses should advocate these needs to theappropriate authorities.



• Electricity is very important to Life Sciences companies, especially large biotech manufacturers,who can record losses in the millions of dollars during a blackout. While big companies take stepsto protect themselves by investing in backup generators, small companies cannot afford to do so.Ideally, the Life Sciences zones should be protected from blackouts. Financial incentives should beprovided for alternative energy generation.

• Industry representatives should develop a matrix that details what utilities are important for vari-ous companies, depending upon the stage of their life cycle. Zones for Life Sciences companies’development should be identified around existing resources.

Information Infrastructure

Well-developed communication networks are a prerequisite for a knowledge-based industry like LifeSciences. They make possible employee telecommuting but also the integration of InformationTechnology into Life Sciences sub-industries. The information infrastructure includes installed fiber opticcables, network operating centers, and wireless networks. The fiber and copper plants, switches, andequipment together enable regional access to high-speed connectivity for businesses.


According to Nielsen//NetRatings, broadband access at home increased 59% country-wide during2002, while dial-up access declined 10%, even as narrowband users still comprise the bulk of the USonline population.31

The Sacramento Valley is well served by telephone, cable and Internet access. In 2002, Sacramentoranked 12th among metropolitan regions for the number of people with high-speed Internet connections,jumping 117% from the year before.32

As with consumers, businesses are steadily signing up for high-speed access and implementing broad-band business solutions. Many businesses are using broadband to improve business processes or achieveefficiencies. The predominant access systems for business users are optical-fiber synchronous optical net-work (SONET) and synchronous digital hierarchy (SDH) systems.33

Broadband networks represent both critical requirements and enormous opportunities for Life Sciencesand health care. High-speed access enables scientists to work with bioinformatics databases that containterabytes of data and analyze genetic sequences for much lower costs than it would have been possiblebefore these applications were available online.

RECOMMENDATIONS

• An area-wide plan is necessary for providing ubiquitous broadband access – simple, reliable, andeasily accessible.

• A sitemap such as GIS (Geographic Information Systems) would be useful for deciding who getspriority, based on the different needs of the various industry sectors (clinical experiments vs.manufacturing operations, etc). A GIS combines layers of information about a place to give you a


better understanding of that place. What layers of information you combine depends on your pur-pose. GIS allows improved management of available resources and better decision making. Anexample of how GIS was used in other applications is the Sacramento Regional GIS Cooperative’sStreet Network Database, which has enormous potential to coordinate local planning efforts andimprove local public safety response times.34

• The Life Sciences community should facilitate discussions of providers, users and governmentthrough its representatives, to determine availability, need, cost, and provide incentives to enhanceservice. The GIS tool can be shared to map customer needs.

INTRODUCTION

Currently, the three major Life Sciences industry clusters in California (The Bay Area, San Diego, andLos Angeles) identify workforce development as the second or third largest hurdle to commercializationand economic success.36 As the Sacramento region shifts from an agricultural and government-based econ-omy, one of the core elements of aLife Sciences, focused economic planmust be development of the requisitehuman capital.

Life Sciences companies have aclose relationship with academia.Academic institutions provide notonly important discoveries to theindustry, but also the human capitalwith the skills required during thedifferent stages of a Life Sciencescompany’s development. See Exhibit13. In addition, the entrepreneurialcapacity necessary to turn new ideasinto companies is a critical ingredientto any regional cluster’s human capital.

A superior talent pool across each of these stages of development would give the region a significantcompetitive advantage over other regions and states. Currently the region is extremely strong at develop-ing workers for the first stage: Research, and for the fifth stage: Manufacturing. These strengths fit wellwith the current needs of the Life Sciences industry in the region, which consists of mostly young, R&D-stage companies, and a growing number of manufacturing facilities for large bay area companies.

23CHAPTER 3: HUMAN CAPITAL

3HUMAN CAPITAL

By Tod Stoltz

The only impediment to continued growth of the industry in California

is the lack of a sufficient pool of Life Sciences students. This long-

term need requires a long-term strategy. To assure sufficient talent in

the decades ahead more students must have sufficient science

education to ready them for graduate school. Business, school

districts, and colleges and universities should be encouraged to

collaborate in establishing and supporting science education

“pipelines” that provide mentoring, tutoring, and coaching in science

and math from the elementary grades through community college.35

- Jerome Seliger, Professor Health Sciences. CSU Northridge. For the California Research Bureau

Exhibit 13: Phases of Development in Life Sciences Companies

Meanwhile the other Life Sciences clusters in the state: San Diego, Los Angeles and the Bay Area, aremuch more mature and have many companies that span all stages of development.

It is essential that the institutions involved in workforce development pay close attention to statewidetrends in the industry because it will reflect the challenges and strengths of the other clusters. As thoseclusters mature, and the young, research-intensive companies move their discoveries through the pipelineof clinical development to regulatory approval, their workforce needs are transitioning from R&D to reg-ulatory approval and manufacturing.37 “Statewide, the most critical short term and long term industryworkforce needs exist in the applied sector (pertaining to those skill sets associated with the transition ofcompanies from the discovery, basic research mode into applied research, development, Food and DrugAdministration (FDA) approval, commercialization, and manufacturing.” 38

The Sacramento region is comparatively immature, and is more likely to need employees with skills rel-evant for earlier-stage companies. Fifty percent of respondents surveyed in the region said their firms weretrying to fill R&D positions (see Exhibit 14 below):

There are approximately 100 Life Sciences companies, and over 5,000 people employed at thosecompanies throughout the region. While these numbers are small in comparison to the numbers ofcompanies and employees in the three major, Life Sciences clusters in California, the wide diversity of

the companies in the region is encouraging.Sacramento is home to companies specializ-ing in pharmaceutical biotech, agriculturalbiotech, medical devices, and diagnostics. Inaddition, the region is home to the manufac-turing facilities of several Bay Area companies.This diversity should be encouraged, as it willprovide a more robust engine of regional eco-nomic development than a highly specializedcluster will.

Depending upon the vigor of the otherfactors affecting growth of companies in thisregion (capital, technology, and infrastruc-ture) the growth of these companies in the

next 5-10 years has the potential to place a dramatic demand on the regional workforce. Any efforts under-taken now to improve the capacity of the region to develop the necessary human capital will make asignificant impact on the region’s ability to develop successful Life Sciences companies.

There are several means of developing human capital: • K-12 schools • Universities and Community Colleges • Recruitment & Retention

Each plays different roles in the process. Their contributions are analyzed below, challenges they cur-rently face are identified, and some recommendations that came from the September Life SciencesWorking Summit and subsequent interviews with industry officials are discussed.


Exhibit 14: Survey Responses to Current Hires Desired


EDUCATION: K-12

Introduction

Few workers enter the Life Sciences industry workforce directly from the primary education system.However, primary schools play a critical role in Life Sciences workforce development by exposing primaryschool students to the industry, and the opportunities it offers; and by providing students with the funda-mental tools in math, science, and writing required in nearly every career in the Life Sciences.


Many K-12 students are unaware of careers in the Life Sciences industry. Participants in the WorkingSummit expressed concern that most students – particularly young students (k-8), were not aware of thewide variety of career options available to them in the Life Sciences industry. There are several reasons forthis problem, and some are discussed below. One is that science education is not a priority in the cur-riculum of many k-8 schools. Thus younger students are now aware of the possibilities. One impact ofthis problem is that very few students who enter community colleges directly from high school seek LifeSciences degrees. Instead, they pursue AS degrees in other programs that are more widely known: nurs-ing, electronics, information systems, etc.

Students from ethnically and culturally diverse backgrounds do not relate to the stereotypic image of sci-entists (white, male). A diverse set of viewpoints is critical for the development of any industry reliant oninnovation. As new ideas are disseminated through an industry, people with diverse backgrounds may seenew applications of those ideas, or they may know of ways to improve those ideas in such a way as to makethem commercially applicable. The generally held stereotype of scientists as white males is a subtle deter-rent to minority students.

In many California schools, math and science test scores rank below the national average. This is a par-ticular concern to the Life Sciences industry, which relies heavily upon workers well versed in math andscience at all levels of employment.

Science education is not a priority in the curriculum of many K-8 schools. For example, the STAR(Standardized Testing and Reporting) program, instituted by the state of California in 1997 only requiresthat students be tested in the Sciences beginning in grade 9. This sends a strong message to schools thatscience education is not valuable until students reach high school.

RECOMMENDATIONS

Encourage career paths in science and mathematics in K-12 students. The problem of building studentinterest in science has been identified and addressed before. Dr. Judith Ramaley in the section of educa-tion and human resources at the National Science Foundation (NSF) states that, “It has to start aroundthe 4-5th grade. You must go into the valley of the shadow, where pupils turn off to science and mathunless they’ve experienced: good classroom material, chances to explore the topic and teachers who lovethe subject.” 39

Improve resources for K-12 teacher training. A key component of reaching students is well-trainedteachers, with the resources necessary to provide powerful educational programs to their students. Science


is a subject that is best learned in a hands-on environment, where students can learn and explore in waysthat are impossible when the subject is heard through a lecture or read in a text. Primary school teachersmust have the ability to acquire the resources necessary to teach science in a fully integrated fashion.

Make better use of education research and modern teaching techniques. While it is clearly beyond thecapacity of this region to reform the state or national educational system, it is nonetheless a criticallyimportant issue that needs to be communicated to local, state and federal governments. As knowledgeabout how people learn is discovered, it must be incorporated into the educational programs – particular-ly for younger students.

Locally, there are successful examples of this strategy at the high school level, rather than the youngergrades identified by Ramaley. Since 1999, Ann Moriarty at Davis Senior High School has developed a cur-riculum in the Life Sciences that has been effective in improving student awareness of biotechnology

careers. Her program is focused on the “appliedLife Sciences” (DNA and protein electrophoresis,PCR, gene splicing, bioinformatics tools, etc.), andrequires students to take internships at companiesor university research labs. Industry and academicspeakers also come into classes to talk about careeropportunities in the Life Sciences.

Dr. Judith Kjelstrom, acting director of thebiotechnology program at UC Davis, serves on theadvisory committee. From the university’s pointof view, the high school biotech class “is like adream come true,” Kjelstrom said. “They’re bring-ing curriculum like molecular biology to the highschool, so UC doesn’t have to start at square one.It’s how we can get well-trained freshmen that

don’t have to start with remedial work. Their experience at the university level will be enhanced — bythe time they are juniors or seniors (in college) they will be at the point of being on a research team…We want to educate our students in this area, and not have to ship all those brilliant minds to companiesin the Bay Area or San Diego.” 40 There are examples of government programs that successfully stimulateinterest in the study of science and increase the total students pursuing studies in science, such as thenational science fair. 41 42

The Center for Biophotonics, Science and Technology (CBST), which is described in more detail in theUniversity and Community College Section, has also developed an ambitious program for outreach intothe K-12 system that should be leveraged with other efforts going on in the region, and other grant pro-grams available to primary school institutions.

Private industry can and should participate in the development of programs to spur the interest of pri-mary school students. Examples of successful privately run programs include the U.S. First Robotic


CBST scientists, teachers, after-school program and

community based program staff, and college faculty are

developing a set of thematically linked science curricu-

la. In addition to featuring general science, biology,

physics, and engineering, the curricula will promote

scientific inquiry and concept development among

children and youth. Each unit will support the

California Department of Education Science Framework

and will be appropriate for classroom or after-school

programs. The educational materials will feature

hands-on, inquiry-based science activities.43

Competition, “FIRST designs accessible, innovative programs to build self-confidence, knowledge and lifeskills while motivating young people to pursue opportunities in science, technology and engineering.”44

This program annually engages more than 10,000 high school students across the country in design com-petitions in collaboration with industrial sponsors. St. Francis high school in Sacramento sent an all-girlsteam to the regional finals in the FIRST competition in 2002.45

Improving educational techniques is an issue that has been explored many times. In a report that lookedat the science and engineering workforce needs for the entire county, The National Academy of Sciencerecently recommended that the educational systemshould “make use of cognition research to betterinform pedagogy at all educational levels. Today’sclassrooms look much as they did in 1900. Knowledgeof how students learn and use information has largelybeen ignored. The federal government has neverinvested a large amount of money in educationresearch or in connecting that research to educationpractice.” 46 There are examples of successful effortsto link technology and industry in a cross-disciplinefashion that can be emulated, such as those at NSF’sEngineering Research Centers.47 Improving teachercompensation, so that schools can compete withindustry for skilled workers is another recommen-dation that the NAS report recommended.

EDUCATION: UNIVERSITIES AND COMMUNITY COLLEGES

Introduction

The minimum point of entry for most Life Sciences job opportunities is at least a four-year college edu-cation. In biotechnology, the workforce is estimated to be 19% Ph.D., 17% M.Sc., and 50% B.Sc. Theremaining 14% are composed of vocational education and community college graduates.49 Clearly,institutions of higher learning play the primary role in developing the current and future Life Sciencesworkforce. Improvements in the sector, therefore, offer the greatest opportunity for direct impact onthe development of a regional Life Sciences cluster. In the Sacramento region, the primary sources ofhigher education in the Life Sciences are UC Davis, CSU Sacramento, American River College, SolanoCommunity College, Sierra College, Sacramento City College, Cosumnes River College, and a few oth-ers. Relative to other regional clusters, this is a small number of programs/institutions.50 However, someof these institutions are national leaders in their respective fields of workforce training, and provide a greatresource for the region to use as a springboard for further development.


An ongoing problem the industry faces, particularly the

small and medium-sized companies, is lack of ability

to attract needed, highly skilled, intellectual talent.

Although California’s public and private universities

graduate more Masters and Doctoral degree holders in

the Life Sciences and related disciplines than any other

state each year, demand in many communities exceeds

supply.48

- Stephen Dahms, Executive Director, CSUPERB. San Diego State University.

REGIONAL HIGHLIGHTS IN POST-SECONDARY LIFE SCIENCES EDUCATION

Community College Level:Solano Community College has a nationally recognized biotechnology training program for technicians

in the biotechnology industry. It specializes in training the manufacturing component of the industry; thismakes it one of the five community colleges in the United States with this specialty. It is a model for othercolleges in the process of developing a biotechnology program. In the last four years, the College has pur-chased over $400,000 in new equipment. With the addition of donated used equipment from Genentechand others, the College has assembled one of the best equipped teaching laboratories of any college oruniversity in North America.

University Level:UCDavis has developed several nationally recognized programs. The Designated Emphasis in

Biotechnology (DEB) is an inter-graduate group program that allows Ph.D. students from a variety of pro-grams to receive and be credited for training in the area of biotechnology. The DEB provides a nurturinginteractive environment to promote integration of multiple disciplinary approaches to the conduct ofresearch and to promote learning in biotechnology. The program recently was awarded an NIH traininggrant award to support fellowships for students in the program.

The Advanced Degree Program (ADP) is an industry-university partnership program that allowsindustry researchers the opportunity to earn a Ph.D. while continuing to work at their companies. Manycorporations have become serial users of this program.

The Center for Biophotonics, Science and Technology (CBST) is an example of collaboration betweendifferent academic and research institutions to improve student opportunities in the Life Sciences.Biophotonics is the science of using light to understand the inner workings of cells and tissues in livingorganisms. Applications of biophotonics range from using light to image or selectively treat tumors, tosequencing DNA and identifying single biomolecules within cells. CBST is supported by a $40 milliondollar grant from the NSF.51

CSU, Sacramento, has developed MBIG—Molecular Biology Interdisciplinary Group—an NSFfunded program that supports faculty and students from diverse disciplines with a common interest inmolecular biology.


Government and Academia must work hard to continually keep pace with the changes in the industry.The general consensus at the Working Summit was that the universities and colleges do a good job of pro-viding human capital to the industry. However, a common theme that surfaced was the need to keep upwith the rapid changes in the industry.

• Industry skill and knowledge requirements for new hires are changing rapidly as advancements aremade in the Life Sciences industry. Universities and Colleges must be able to learn about andadapt to these changes. Many participants in the Working Summit identified a communication gapbetween industry and academia as a problem in their recruitment efforts of recent graduates.There is a need for standardized skill sets and vocabulary, created by industry to assist educators.


• Training facilities that match the technology and practices of industry are scarce. As the industrydevelops new methods to produce it’s materials, training programs must keep pace. For example,many new biotech drugs are monoclonal antibodies that must be produced in mammalian cellculture systems, rather than the “traditional” bacterial and fungal cell culture systems that mostcolleges and universities are equipped to train students on.

• Community college faculties need continual training in these rapidly changing fields. As theindustry changes, educators must have resources available to them that let them keep abreast ofthese new tools and techniques.

UC Davis is a world leader in Life Sciencesdiscovery research, which is an essentialcomponent for any regional Life Sciencescluster. See the Insert on several of UCDavis’ programs. Discovery researchrequires well-trained investigators, whichUC Davis is also a national leader in pro-ducing (see Exhibit 15).

UC Davis is clearly bucking the statewideproblem identified by Dahms: “Competitionamong companies is affected by a 10-year lowin undergraduate and graduate enrollments inthe natural sciences (statewide), forcingdependence upon foreign workers.”53 Inaddition, UC Davis excels at training under-graduates in the biological sciences. Forexample, the Biotechnology major in theCollege of Agricultural and EnvironmentalSciences is the fastest growing major at UCDavis.54 The survey conducted after theWorking Summit also shows that most com-panies in the region do not find it difficult tofind basic researchers to fit their needs (seeExhibit 16).

However, basic and even appliedresearchers are just part of the human capitalnecessary in a regional cluster. As outlined inthe other California regional strategic plans,


Exhibit 15: Awarded Doctorates in the Biosciences from Top Universities

Exhibit 16: Survey Responses to Supply of Graduates


and as the three major Life Sciences clusters are experiencing, the primary growth in the workforce of amaturing company occurs in the operation, development, quality, clinical, regulatory, manufacturing,finance business development, marketing, and sales. “Statewide, as the companies formed in the ’90s arestarting to mature, there is a clear need for workers trained in regulatory affairs, clinical affairs and quali-ty control.”55 Yet, only UCSD has developed an advanced degree program to meet this demand. Theirmasters program in regulatory affairs is one of only five similar programs in the US.

UC Davis’ has two exceptional programs to train students. First, the Advanced Degree Program(ADP) for Corporate Employees is an innovative program that allows industry researchers to earn a Ph.D.while continuing to work.57 This program will further increase the number of Ph.D.s the campus gradu-ates, and it will offer a tool for retraining employees in current skills, but possibly the most important

impact is that it creates invaluable links betweenacademia and industry, allowing the free flow ofinformation between the two and giving academiafirst-hand knowledge of industry needs and trends.

Secondly, the Designated Emphasis inBiotechnology (DEB) Program also provides train-ing in biotechnology to graduate students from avariety of programs. The mission is to preparewell-educated students to approach problems withcreativity and flexibility. The program will providetools for the students to be leaders, visionaries,entrepreneurs, researchers and teachers in thebroad area of biomolecular technology. One pro-gram in the DEB illustrates the kinds of academic-industry links that are necessary in the LifeSciences: MIC 292: An Introduction to

Biotechnology at the Industrial Level. This course is taught at UC Davis by scientists from Novozymesin Davis. The course is intended to give students an opportunity to hear first hand about commercializa-tion of Life Sciences innovations.

UC Davis is also home to The Center for Biophotonics, Science and Technology (CBST), which ishoused at the UC Davis Medical Center. Many exciting technologies developed at LLNL are finding newapplications in medicine through the efforts of this program. Part of CBST’s mission is also outreach intothe K-12 educational system, which was discussed earlier.

CSU, Sacramento, has developed MBIG (Molecular Biology Interdisciplinary Group) under the lead-ership of Suzanne Lindgren. MBIG is an NSF funded program that supports faculty and students whoare currently involved in molecular biology and biochemical research at CSUS. Currently MBIG is estab-lishing a facility that enables faculty and students to share resources and knowledge while providing amodern molecular laboratory for both research and instruction. By encouraging the interaction between adiverse range of scientists, MBIG seeks to maximize the use of resources, create a cooperative environment


As a fourth year student in the Advanced Degree Program, I

often feel like a conduit for the flow of ideas between Berlex

Biosciences (my supporting company) and UC Davis. My

involvement has initiated a series of collaborations between

Berlex Biosciences and UC Davis that had not existed

before. A symbiotic relationship has developed in the pur-

suit of excellent science as Berlex Biosciences searches for

novel therapeutic drugs and UC Davis contributes novel

findings to the scientific community at large.56

- R. Fitch, PhD Student, UC Davis.

for the production of high quality scientific research, and establish a space for students to master a varietyof contemporary molecular biological techniques.58

In addition to the four-year (or more) programs at UC Davis and CSU Sacramento, American RiverCollege (ARC) offers biotechnology training in the form of certificate and AS degree programs. ARC’sprogram began in 1999, and is more focused on general laboratory training of its students, and morerecently has specialized in bioinformatics. The curriculum at ARC is industry driven and was designedaround an in-depth skills survey of local industry initially conducted in late 1998, and repeated in 2002.59

The curriculum focuses on applied skills and provides a great deal of hands-on lab time for the students.The college offers specialized short courses in bioinformatics and ethics in biotechnology and has recent-ly begun offering online courses. Enrollment in this program has been limited by the slow growth of theLife Sciences industry in the region. ARC is also the home to the North Valley & Mountain BiotechnologyCenter (NV & MBC), which is one of the six regional centers of the Biotechnology Initiative of theCalifornia Community College’s Chancellor’s Office.

The Applied Biological Technologies Initiative of the California Community College Chancellor’sOffice Economics and Workforce Development Program (the Biotech Initiative) has six centers organizedin geographical regions that serve the educational needs of the biotechnology workforce in California,emphasizing hands-on learning. The goals of the Centers are accomplished by employee needs assess-ments, connections with the biotechnology industry, instructor training and faculty development, modelcurriculum development, and creating partnerships among economic development groups, four-year col-leges, government and the community colleges.60

With strong support from Genentech, Dr. Jim Dekloe has developed a model program at SolanoCollege, located in Fairfield, 60 miles West of Sacramento, that offers an AS degree in biotechnology anda certificate program specifically focused on biomanufacturing. Some Sacramento area students attend thisprogram in order to pursue jobs in the Vacaville biomanufacturing cluster (Chiron, Genentech, Alza),about 40 miles West of Sacramento. In this respect, Solano College has a significant impact on theSacramento regional workforce. See Insert about the program. The teaching facilities used in this pro-gram provide students unique opportunities to train on equipment used in industry. Additional trainingfacilities similar to SCCs, but accessible to students throughout the region would prove to be a valuabletraining tool in the region. Recently, state funding has been secured for training facilities in both SanDiego and Hayward. The Sacramento region should pursue similar funding. An additional model forSCC to consider would be the Workforce Investment Act-supported pilot project between Genentech andSkyline College to retrain hundreds of dislocated workers for biotech manufacturing positions. To date,that program has an 80+% placement rate, and both organizations are seeking to expand the program usingWIA funding.61

Resources must also be made available to allow primary school and community college educators toremain up-to-date with current practices in the industry. UC Davis is one of three recipients in the stateof the NIH’s “Train the Trainers” grants. It is also the co-home, along with ARC, of an NSFBioinformatics grant for community college teachers. Finally, the UC Davis Biotechnology Program hasoffered NSF-funded summer short courses in molecular biology and more recently bioinformatics forover 10 years. Many of the biotechnology technician programs at California Community Colleges were anoutgrowth of these programs.


RECOMMENDATIONS

• Provide additional support for the regional training programs at SCC, ARC and UC Davis.Many of the programs expressed difficulty in entering into long-term arrangements with otherinstitutions because of uncertain funding for their programs. While these programs can – and do –seek additional funding for their efforts, a consistent level of state funding would greatly aid theiroutreach efforts.

• Develop regional Life Sciences training facilities.• Continue to develop innovative programs like the UC Davis ADP, and DEB; or the CSU

Sacramento MBIG. Other programs that could be useful include certificate and/or degree pro-grams in regulatory affairs and/or quality control. Due to the lag time between developing a newprogram and trained students entering the workforce (which can be as long as ten years, depend-ing on the training program), it is critical that academic institutions not only keep current withindustry needs but also they must try to anticipate needs. It is clear from the development of theother clusters, that this region will face a bottleneck in the clinical development and regulatoryapproval of products.

• Industry needs to provide more internship opportunities for graduate students, undergraduates,and high school students. One key method of insuring that academics can keep pace with currenttrends in the industry is for industry to offer students at all levels opportunities to work in theirown labs and clinics.

• Increase, involvement of industrial scientists as adjunct faculty for cutting-edge, technicallydemanding courses as another way to improve university-industry collaboration by allowing scien-tists to come into the classroom and teach students.

RECRUITMENT AND RETENTION

Introduction

Recruiting refers to the hiring of skilled workers from other regions in the state, other states, or othercountries. Respondents to the survey indicated that the vast majority are trying to fill R&D positions,which is indicative of the youthfulness of the region’s Life Sciences community. Respondents also indi-cated that R&D positions are not difficult to fill (Exhibit 16).

However, as companies mature, they will require employees with skills in areas that are not currentlybeing developed by local institutions. Recruitment will be a major factor in filling those needs. In addi-tion, recruitment of entrepreneurs and promising young companies to the region would dramaticallyimprove the region’s entrepreneurial and social capital. (See Chapter 6 for a detailed discussion of socialcapital.) “The whole industry in California would benefit from an in-state and out-of-state campaign torecruit Life Sciences graduates.62


Retention refers to keeping existing human capital in the region, so that as people – and companies—develop new skills they ply those skills to the benefit of the local economy rather than moving to anotherregion. It is important that the region do a good job of keeping people informed of what the region has tooffer, not only from a quality-of-life perspective (see the previous section on recruitment) but also from acareer development perspective. This is another instance when the visibility of the existing Life Sciencesindustry in a region becomes important. Life Sciences companies that believe they have access locally tothe resources they need (both human and otherwise) to move their products through the developmentcycle from research to sales and distribution will feel more comfortable locating—and staying—in theregion.

Retraining displaced workers is another means of improving retention of the existing workforce.California’s Employment Training Panel (ETP) sets aside money (approximately $50 million) each year toassist companies in incumbent worker training. The state is particularly supportive of high growth indus-tries like the Life Sciences.


Need more visibility for Sacramento Life Science/Medical Device cluster. Throughout the state andcountry, the Sacramento region is viewed as a second tier Life Sciences cluster, which discourages compa-nies and executives from locating in the region. As national and statewide awareness of the Sacramentoregion as a Life Sciences cluster grows, the region will benefit. Currently, the key employees necessary forstartups locate in the nearby Bay Area where they feel more resources are available to them locally.Challenges recruiters face when recruiting into Sacramento are:63

Candidates want to stay close to the action, so they don’t want to leave the bay area. With the largenumber of companies in the bay area and all the acquisitions and strategic partnerships most executiveswant to be close the networking action.

Salaries in the Sacramento region are about 10-20% lower in comparison to the bay and the time com-mitment is the same or greater once you factor in commute time into the bay area.

Cash considerations, companies are unwilling or unable to relocate qualified candidates. Additionally,there are unrealistic expectations: candidates moving into Sacramento are often making a quality of lifemove which means they are looking to slow down.

A common vocabulary, identifiable skill sets, job descriptions and industry awareness/knowledge willfacilitate training efforts by all stake holders. Advances in technology have changed the employment land-scape dramatically in the Life Sciences. Out of the Life Sciences industry, new careers have been spawnedthat were unheard of just a few years ago, and as the industry continues to innovate jobs are becomingmore specialized. It is critically important that the skill sets necessary to excel in these new careers be welldefined and generally communicated.


RECOMMENDATIONS

• Market the concept that the Sacramento region is a good place to work and live. There are severalfactors that make the Sacramento region a desirable place to live. Its proximity to the Bay Area,Lake Tahoe, and the Napa Valley; lower cost of living relative to other regions; and excellent edu-cational institutions make it a desirable location to live, work, and raise a family.

• Facilitate communication among stakeholders by bringing people together through a Sacramentoworkforce development “Working Group” that includes representatives of the WorkforceInvestment Board (WIB), SACTO, SARTA, UC Davis Biotechnology Program, ARC, SCC, etc.

An organization representative of the entire region, such as SARTA, should take the initiative in col-lecting useful information used by local chambers of commerce to synthesize that information into aregional marketing program.

In addition, efforts by local government or other agencies to increase the visibility of existing LifeSciences companies in the region would benefit the region in two ways: first, existing companies wouldbe more aware of the resources available to them locally, and entrepreneurs would be encouraged to set upcompanies in the region.

To address the common terminology problem identified at the summit and by several interviewees,the California Employment Development Department should continue to fund the North Valley &Mountain Biotechnology Center to lead the effort in conducting a regional Life Sciences company census.The census should be charged with identifying, categorizing, and communicating the different typesof jobs and skills required by the Life Sciences companies in the region. The Central CoastBiotechnology Center (CCBC) workforce census conducted in 1998 provides an excellent model thatshould be revisited every five years to ensure that there is a minimal amount of communicationbetween academia and industry.64

It is important to recognize that human capital is a constantly changing segment of a cluster’s develop-ment. A Workforce Development Working Group, comprised of members from academia, government,and industry, could be the central point of communication for all stakeholders in the process. Furthermore,such a group could provide an information conduit into the companies about the resources available tothem from the local, state and federal government. This group could also be charged with implementingmany of the recommendations discussed in this plan. For example, the periodic employment survey to beconducted by the NV&MBC could be supplemented as necessary with definitions provided by the work-ing group.

“A Workforce Development Working Group consisting of representatives from area universities, com-munity colleges, industry, and local and state government would be a useful body and could developrecommendations and strategic plans to address the Life Sciences workforce training needs in the region,collaborating with invested organizations and parties and working across organizational boundaries.”65


INTRODUCTION

There are several attributes that characterize a region’s ability to successfully develop and promote tech-nology and innovation in the marketplace. Regions where intellectual capital flourished and ideas weresuccessfully commercialized were characterized by implementation in the following three areas.

• Research and Innovative Capacity• Technology Transfer • Technology Commercialization and Capitalization

It is the successful deployment and interaction between these three attributes that underlies the successof intellectual capital creation and commercialization of technology in leading Life Sciences regions.Intellectual property creation, new company formation, Life Sciences graduates, and the amount ofstate/federal funding and grants can most effectively measure intellectual capital productivity.66 In this sec-tion, details of these three key attributes will be introduced. A discussion of the current status and needsof the Sacramento Valley will then be detailed, followed by recommendations to improve the region’sstanding in regards to these attributes.

Research and Innovative Capacity

Research and innovative capacity remain at the heart of successful research and development efforts.Leading Life Sciences technology transfer centers and regions are usually concentrated around majorresearch universities, laboratories, and major research institutions. Often research universities andresearch institutions form “the backbone of successful technology clusters, performing both basic andcommercial research (see Exhibit 17).”67


In the Sacramento Valley, UC Davis sits as one of the state’s and nation’s leaders in the research ofbiotechnology, agricultural sciences, and medicine, and is a growing leader in the UC system for success-ful R&D and technology transfer. At UC Davis, Life Sciences research activity remains high.

Recent activities include the nearly completed construction of the newly established Genome Center oncampus. The center will recruit new faculty positions in genomics, proteomics, and bioinformatics.Another newly established center, the Center for Biophotonics, Science and Technology (CBST), received

35CHAPTER 4: INTELLECTUAL CAPITAL

4INTELLECTUAL CAPITAL

By Sungene Ryang

a $40 million grant from the NSF and reflects continued collaborations between UC Davis and LawrenceLivermore National Labs (LLNL). CBST brings together roughly 100 researchers including physical sci-entists, life scientists, physicians and engineers. In addition to UC Davis and the Lawrence LivermoreNational Laboratory, center members include UC Berkeley, UC San Francisco, Lawrence BerkeleyNational Laboratory, Stanford University, Alabama A&M University, University of Texas at San Antonio,Hampton University, and Fisk University.

These initiatives generally reflect the grow-ing trend in cross disciplinary, collaborativeresearch. As an example, the relatively youngbut promising field of biomedical engineering,a very broad discipline that spans biology andengineering demonstrates this. The recentlyestablished biomedical engineering departmentat UC Davis headed by Dr. Katherine Ferrara,recently raised over $47 million in matchedfunds by securing a leadership developmentaward from a large foundation. Dr. Ferrarabelieves that the funds will allow her depart-ment to create one of the best imaging facilitiesin the nation, as well as developing other areasthat include molecular therapeutics and sys-tems biology. In fact, one of the machines has

already been commercialized and marketed. The department has many collaborations with industry andis beginning to consider startup opportunities. As a discipline, biomedical engineering takes a systems


“Our drug delivery work uses ultrasound technology to

manipulate and deliver drugs to a specific location.

Maximizing the delivery of drugs is a difficult problem

solved by bringing together concepts in acoustics, physics,

modern biology and biochemistry. Complex issues such as

these require a team and the ability to integrate across

these different areas. It requires partners to take it into the

clinic. We need approved ultrasound systems as well as

drug delivery vehicles and testing for efficacy.

Biomedical engineering provides the opportunity

to solve this combination of challenges.”

- Dr. Katherine Ferrara, Chair, Department of Biomedical Engineering, UC Davis

Exhibit 17: Major Sources of Intellectual Property in the Sacramento Region72

approach to problems where biology, chemistry, physics and engineering converge. This systems focus isreally unique to biomedical engineering and its discoveries are becoming an important part of a newbiotech industry.

Other universities in the region with more limited research capacities include CSU Sacramento, CSUChico and UC Merced. LLNL represents one of the largest federal research institutions in the US.Currently, however, there is a growing but limited collaboration between the region and LLNL via CBST.Collaborations with Lawrence Berkeley National Laboratory are just beginning to be established as well.This limited collaboration between research institutions points to a greater problem for the Sacramentoregion. Without complementary or competitive research organizations working with UC Davis or withother major research groups, the region’s ability to develop and create marketable intellectual property andcapacity is stifled.

Furthermore, the lack of private research institutions in the region also inhibits commercializationefforts. Private research institutions and established Life Sciences industry companies follow “the clearestprocess for transferring technology to the marketplace” as this goals serves as “the explicit mission of theseorganizations.”68 Unlike private sector organizations with a strong commercial focus, federal and uni-versity based research institutions often do not prioritize technology transfer and the licensing andcommercialization of intellectual property (IP). This leads to a situation where potentially valuabletechnologies and IP do not make their way into commercial applications, never venturing past the lab-oratories where they were invented.

RECOMMENDATIONS

• Increase the number of leading research institutes in the region to both complement and competewith UC Davis. Without competition, innovative research can be stifled and commercializationefforts can become bogged down by excessive bureaucracy and one sidedness.

• Increased technology transfer activity will increase royalties and revenues to research organizations,which can set aside a percentage of royalties to bolster and promote entrepreneurial pursuits andindustry partnerships with increased intellectual property. State and federal tax benefits, andincentives to offset heavy Life Sciences R&D and development costs for entrepreneurs, corpora-tions, and venture capitalists (VCs) will further motivate the industry and bolster the region’seconomy. An effective incentive program will create a virtuous cycle of cooperation and commer-cialization between researchers and industry players.

Technology Transfer

Technology transfer remains the crucial element in taking cutting-edge research and successfullylaunching it into the marketplace. Technology transfer is the process of utilizing innovation, research, ortechnology for a purpose that produces commercial benefits or product/process improvement.69 The suc-cessful transfer of intellectual and human capital between organizations is of critical importance in the freeflow of ideas between research institutions and the marketplace. Consistent access to information andresources, and communication between researchers and industry is vital to the success of transformingtechnology transfer into a viable business catalyst.



There has been considerable recent interest in taking the research done at the university and commer-cializing these technologies. In the past few years, most UC campuses have set up their own technologytransfer offices in conjunction with the central University of California Office of Technology Transfer.The campus-based centers are approaching or have approached maturity in structuring and managing IPdeals, although the IP that they market is generally at the research stage. Licensees are sought to furtherdevelop the technology. UC Davis has held the No. 2 position in the UC system the past two years,behind UC San Francisco, for income from royalties and fees with income for 2002 at $16.5 million, upfrom $9.6 million in 2001.70

Key Steps in the Technology Transfer Process

There are a number of steps that are essential in successful technology transfer process (see Exhibit 18).The key steps (see Exhibit 18) are comprised of:

Discovery and Innovation through Research.The discovery or innovation of a process, technology, or technique in the lab or classroom initiates

the tech transfer process. The discovery must then be recorded and disclosed to the technology trans-fer center (TTC).

Obtaining Intellectual Property RightsA patent or copyright application is then filed by the TTC to which the technology has been discovered

or disclosed on behalf of the discoverer. Marketing of Research and PatentsOnce IP has been sought and/or filed for, the TTC begins promotion of the discovery or innovation to

the greater community and business marketplace.

Licensing of PatentsOnce an appropriate individual or organization with the necessary financial, manufacturing, and mar-

keting capabilities has been identified, a licensing agreement between the TTC and the organization isnegotiated.71

With these key steps in place, technology transfer offices can help innovators, scientists and researchersconvert their discoveries into commercial applications that can benefit the greater community. Thesebenefits can be seen through improved medical processes, new drugs and treatments, and advanced tech-nologies that improve our quality of life. The results benefit not only the original discoverer, but also thelocal partners who are involved in the commercialization of the innovation and the regions that supportthe process.


Exhibit 18: Key Steps in the Technology Transfer Process

Source: Lawrence Berkeley National Laboratory

While each of these steps is being addressed by different organizations in Sacramento Valley, there hasnot been a centralization of these activities under one umbrella organization. The UC Davis TechnologyTransfer Center (UCD TTC) actively addresses the first of these two steps, but in instances possesses lim-ited resources to continually satisfy the marketing and licensing requirements to fulfill the technologytransfer process. Other external organizations are hesitant to approach the University due to perceptionsof bureaucracy within the tech transfer process at the state level and in their relationships with UCD TTCand other research institutions in the area. Inaccessibility to research and support mechanisms has alsobeen deemed as problematic to continued success within the tech transfer process in the region.

RECOMMENDATIONS

• Establish clear methodology for technology transfer. This methodology should support universityor institutional academic goals in harmony with the technology transfer process. This is a key stepfor the technology transfer process to reach its potential.

• An individual or organization must facilitate increased communication, cooperation and access toresources between technology transfer and commercialization players. An organization such asSARTA, UC Davis CONNECT, or the California Business, Transportation and Housing Agencymust take the lead and serve as a broker in bringing together various parties through networkingevents and information sharing.

• Private and public sector working groups should be established to improve cooperation betweenbusiness, industry and public sector organizations (such as universities and federal research institu-tions). Improved commercialization practices, controls, and incentives would spark increasedcooperation and interest between the two sectors.

• A thorough re-evaluation of the key steps of the technology transfer process must be undertakenby researchers and technology transfer offices. A reward system that emphasizes the number ofpatents or licenses issued should be reconsidered, with a greater focus on the marketing of viableresearch and innovation. By simply rewarding the number of patents or licenses issued, the realrewards for a strong technology transfer and commercialization system will go unrealized.

• Currently, patent applications and other methods of obtaining intellectual property rights precedemarketing evaluations of research. Resources could be better used to fund initial market researchand analysis before a technology or research is earmarked for patenting. This would save fundingon patents for research that inevitably may not ever be able to be commercialized and would alsoprovide a kick-start to the marketing and commercialization process for research that was found tobe marketable and commercially viable in the pre-patent marketing stage (see Exhibit 19)

• By placing emphasis on technology commercialization as a top priority, implementing initial mar-ket research and analysis before the patent process would help to involve a number of key outsideplayers who would be instrumental in the commercialization of the technology and/or research,minimizing the perceptions of excessive bureaucracy and the lack of awareness surrounding theentire tech transfer process.


Technology Commercialization

Technology commercialization is the process of identifying industries and organizations that are capableof taking IP and bringing this research or technology to market. It is the essential ingredient required tovalidate a discovery or innovation, and it leverages the technology transfer process through licensing andthe creation of new processes and/or products to achieve commercial interest and acceptance. Technologycommercialization requires effective cooperation across a number of different industries and expertise,bringing together researchers, entrepreneurs, capital and financing sources, and commercial corporations.Successful cooperation between these parties can produce extraordinary benefits for these groups and theregions that support this activity.


In the Sacramento region, the number of capital sources to promote and support the region’s LifeSciences technology commercialization is growing as CalPERS with its Biotech Fund and other fundshave targeted the region in an effort to promote growth within the Life Sciences industry. However, wellestablished networks within the venture capitalist and financing networks are limited despite recent inter-est from VC’s in the area. Additionally, a number of organizations promoting entrepreneurial growth andangel investment have increased their visibility. Groups such as the Sacramento Angels, Office of Researchwhich includes both the Technology Transfer Center and UCD CONNECT, and the Graduate School ofManagement (GSM) at UC Davis, are involved in new business and entrepreneurial events. TheSacramento Valley is also represented by a number of leading industry corporations with stable manufac-turing bases such as Genentech and Chiron based in Vacaville.

With the basic elements to successful commercialization efforts beginning to fall into place, coordina-tion between the various players and increased communication and networking activities are necessary.More frequent and effective interaction between technology transfer offices, businesses, and other key


Exhibit 19: Costs and Outcomes in Technology Transfer


partners such as entrepreneur groups and capital-funding sources is deemed necessary. The lack of com-munication and access to key resources and networks underscores most of the obstacles to spurring agrowth in more successful commercialization efforts in the region. Unlike the Bay Area where a numberof trade organizations and industry associations promote numerous networking opportunities, theSacramento Valley is not well represented in this regard. Organizations such as SARTA, UC Davis CON-NECT, the Office of the Vice Chancellor for Research, and the California Business, Transportation andHousing Agency are well positioned to promote more cooperative and focused networking opportunitiesand events, and to increase awareness and cooperation among key players. With various goals, theseorganizations represent the interest of their core members, while not addressing the larger goal of servingthe entire Sacramento Valley.

RECOMMENDATIONS

• A central organization can coordinate the efforts of the various groups in the region to make tech-nology commercialization a focus for all players.

• Internal structures and policies of tech transfer offices and networking groups must reflect a focuson maximizing marketing opportunities for viable research and innovation.

• A focused recruitment agenda to bring in staff experienced in technology transfer and commercialknow-how and increased market based training will help to promote a better understanding ofcommercialization techniques.

• Tech transfer offices and institutions must proactively market new research in earlier stages ofthe technology transfer process to help find agents who can move the technology to the nextstep towards commercialization. This feedback may foster more commercially viable researchand innovation.

CONCLUSION

Successful technology transfer brings substantial value to a region. Research universities and institu-tions benefit from significant financial revenues, and local business partners and licensing companies reapthe rewards of higher profit margins as costly R&D efforts are minimized through successful technologytransfer and partnerships with research institutions devoted solely to research. The benefits to theregion’s economy is clear, as the Bay Area Life Sciences cluster contributes approximately $12 billion tothe regional economy, making up 3.6% of the area’s gross metropolitan product (GMP).73


INTRODUCTION

Financial capital is the money needed by an entrepreneur to start a company. For the Life Sciencesentrepreneur, in addition to employee, administrative, and facilities cost, this money is needed to securepatents, licenses, and specialized “wet lab” equipment and facilities. There are recognized stages for anystartup (see Exhibit 20):

Grants

Finding monetary capital is one of the most challenging aspects of starting a company. Within the LifeSciences, public monies are available in the form of grants from government agencies through the SmallBusiness Innovation Research/Small Business Technology Transfer Programs (SBIR/STTR) as shown inExhibit 21. Ten government agencies are required by the SBIR program to reserve 3% of their R&D budg-et for awarding to small businesses. For STTR, five government agencies are required to reserve a portionof their funds for this program. SBIR funds are available to for-profit businesses that are American-ownedand have less than 500 employees. The principal researcher must be employed by the company. STTRfunding is similar but also includes non-profits of any size as long as they are located in the US and fit oneof the three definitions: nonprofit college or university, nonprofit research organization, or federally fund-ed research center.

43CHAPTER FIVE: FINANCIAL CAPITAL

5FINANCIAL CAPITAL

By Paul Yu-Yang

Exhibit 20: Company Development and Financing Capital Available


Federal funding organizations designate their own topics and solicit proposals. These grants are avail-able every year and follow three phases for technology development. The first phase is a proof of conceptphase and awards up to $100K to prove that a technology shows promise for commercialization. Secondphase awards go towards further development of Phase I. The third phase is technology commercializa-tion and is not funded by SBIR. Total SBIR/STTR regional funding from 1991 to 2000 is depicted inExhibit 22.


Exhibit 21: Summary of SBIR/STTR Information74


Other grant type programs are available and include UC Discovery Grants that range from $50,000 toover $3 million. These grants are 1-to-1 matching funds for direct costs between an industry sponsor andthe UC System/State of California that encourage collaborations. The program was started in 1996. ForUC Davis researchers, the amount of grant monies obtained has peaked this year at over $2.5 million (seeExhibit 23).


Exhibit 22: Life Sciences Grants for the Sacramento Region 1990-2000


Exhibit 23: UC Discovery Grant Awards 2000-2003 for UC Davis

Angel Investors

Another source of seed capital can come from angel investors. This source of capital has become a goodalternative for obtaining early stage funds. In years past, venture capital filled the need for early stage fund-ing. In recent years, venture capital has concentrated more on managing billion dollar funds with a lowerrisk tolerance. Lower risk positions VC for later stage companies with products near or on the market.

Angel investors are typically successful entrepreneurs who have accumulated financial wealth throughtheir own startup efforts. They are motivated by acombination of not wanting to leave the excitement ofstartups, giving back to the entrepreneurial communi-ty, and to continue prospecting in high risk, highreturn investments.

The Sacramento Angels are an organization of highwealth individuals who fit this profile. The Angels typi-cally do deals ranging from $300,000 to $1 million inseries A or B offerings. They have strengths in investingin telecommunication, software, Internet related, andmedical devices. The Angels are now focused onrecruiting new members to increase their expertise inLife Sciences and biotechnology disciplines. They arealso sponsoring a $5000 student scholarship in con-junction with the Center for Biophotonics, Scienceand Technology.


Life Sciences companies have more complicated

development cycles and can take much longer to

see a return than software companies for exam-

ple. This creates a reluctance to want to invest.

With regards to sectors within the Life Sciences

industry, medical devices are usually more tangi-

ble and therefore more easily understood by

Angel investors than biotech deals which often

require knowledge of deeper scientific principles.

So in developing areas where the number of

sophisticated investors is rather limited, it is

easier for medical device clusters to get traction.

- Jim Kitchel, Chairman, Sacramento Angels

Exhibit 24: VC Regional Investment for 2002-2003Q3


Venture Capital

Until recently, venture capital investmentsin the region have been limited to funds com-ing from outside the region. There are fewregional VC’s and even fewer VC’s with LifeSciences investment portfolios. Roger Akersof Akers Capital, LLC, is experienced ininvesting in high-tech companies but sees anopportunity in the Life Sciences area.

Since the beginning of 2002 (Exhibit 24),VC investments in the area have picked up inthe Life Sciences area with medical devices andbiotech ventures being in the top four forinvestment capital secured:

Still, the amount of funding together withflow of ideas is not strong enough to establisha sustained deal flow that investors need toestablish an investment community. ScottLenet of DFJ Frontier, an affiliate of Draper,Fisher, Jurvetson, sees the opportunity. Scottestablished his office in Sacramento to specif-ically look at the investments in the centralvalley. Life Sciences technology is a stronginterest.


Evolving today are great centers of

innovation coming out of the medical centers,

our universities and the research institutions in

the area. From that innovation, coupled with

the numbers of the management professionals

and serial entrepreneurs living in our region,

there is a positive impact on the ability to

privatize companies. We now have exception-

al examples of medical device, agbio, biotech

and diagnostics companies with quality teams

of people who have come together to develop

remarkable products.

- Roger Akers, Founder and Managing Partner, Akers Capital, LLC

There is tremendous potential in the

Sacramento region, especially in the

University of California system at Davis.

The university should be supported and

nurtured—we see it as a source of the next

generation of entrepreneurs and great com-

panies. It takes collaboration between the

university’s scientists and the business

community. The initial steps taken to begin

this process have been very effective, and

now the effort needs to be accelerated with

further cooperation and by creating a specific

mechanism for investors to become aware of

the opportunities that exist.

- Scott Lenet, Founder and Managing Director, DFJ Frontier.

RECOMMENDATIONS

• Publicize existing successful companies. The region has noteworthy past and current success stories in the spectrum of the Life Sciences: Calgene, Lipomics, AgraQuest, and Sagres Discovery,among others. Self- promotion will reinforce the view that entrepreneurial success in the regiondoes happen. For example, a strong “mini-cluster” of cardiovascular medical device companiesexists in the region and traces its origins back to the early ’70s.75 Though long established, thisspecialized segment of the medical device industry is not well known.

• Increase contacts between entrepreneurs and the appropriate funding sources. Events and situa-tions that promote contact and communication between sources of financial capital and startupsthat seek funds do happen in the region. Golden Capital Network, Company X, UC DavisCONNECT, and the Office of the Vice Chancellor for Research promote such events. LifeSciences focused events need to increase in particular.

• Work for Government incentives. Instruct the Business, Transportation and Housing Agency, inconjunction with the Franchise Tax Board, to examine the potential economic impact of AngelInvestor Tax Credits, such as those under consideration in Maryland, Iowa, Ohio and Oklahoma.


INTRODUCTION

This simplified short narrative is the story of how innovations go from idea to industry, and how com-munities form around technology. This particular description is simple but as it describes what musthappen in the innovation life cycle, it is inarguably accurate. It is because of the social component ofstartups that social capital is important.

Social capital is about making the human, intellectual, and financial capital work together. AsHargadon’s description alludes, the development of successful new companies is a very social process. Itinvolves not only the technological foundation but the human foundation as well. This foundation iscomposed of entrepreneurs, investors, managers, employees, etc. Because of this, the workings andlifecycle of a startup are complex, and success is hard to predict. A general statistic that corroboratesthis interpretation is that only one in ten startups will succeed. Social capital is a fourth dimension thatin effect leverages the three capital forces in a way that synergizes them. Together, these forces acttogether to support, maintain, and propel the creation and development of successful startups.Furthermore, the social capital of Silicon Valley iscited as the major reason for its resilience in inno-vation as compared to regions that are technicallywell-adapted but that do not have Silicon Valley’scapacity to continually innovate.

“Network” theory from sociology has been devel-oped to conceptualize the importance of the way socialstructures, both formal and informal, have been key tosustained regional innovation.77 The advantage of hav-ing more, rather than less, social capital is that it canaccelerate the successful formation of companies. Thesocial capital needed for regional innovation includesthe complex network of entrepreneurs, managers,angels, VC’s, and researchers who move a discovery orinnovation forward through the stages of the company.In the early stages of a cluster’s growth, this social net-work focuses around the research and developmentinstitutions.

49CHAPTER SIX: SOCIAL CAPITAL

6SOCIAL CAPITAL

By Paul Yu-Yang

Consider the life cycle: An innovation emerges when one

or a few people recognize the potential in an idea or an

object for uses beyond what’s already been done. They

share this vision with a few others—a colleague down the

hall or a buddy over in software. Those others collective-

ly contribute their own ideas and their own skills, and by

doing so push the idea along and encourage each other

to push even further. They pitch the idea—maybe to a

manager or potential investors, who add yet more

resources, and to other interested colleagues, potential

suppliers, or retailers. Over time, a community begins to

take shape which is connected around the emerging tech-

nology. The efforts of this growing community accelerate

the evolution of the new idea and their diverse perspec-

tives push it in new directions.76

- Andrew Hargadon, Professor, Graduate School of Management, UC Davis, from How Breakthroughs Happen

In later stages, the locus of influence moves to new ventures and the investment community support-ing them. The physical manifestation of social capital is the network that is left standing after a robusttechnology is fully developed into viable regional industry base. In the Bay Area, it is the family tree ofcompanies that started with Fairchild in the Silicon Valley and extended to the main companies left today.Or, in biotech, it is the company tree that started with Genentech, Chiron, and Cetus, and grew into thestrong biotech industry base in South San Francisco and Emeryville.

Building Social Networks

Mary Walshok, former director of UC San Diego CONNECT and a witness to San Diego’s regionalinnovation success, credits San Diego’s success in part to the role of catalytic social networks that fosterand accelerate new company growth. These types of organizations can help build social capital in generalby bringing technology, entrepreneurs, and investors together. The kinds of institutions can range fromincubators to organizations that showcase entrepreneurs at special conferences.

Entrepreneurial Leadership

Leadership at all levels can facilitate the formation of social capital that in turn leads to successful start-ups. The examples of leaders from Chapter 1 ranged from leaders of successful startups, which served asa wellspring for yet even more companies, and institutional leaders. Founders of successful Life Sciencesstartups serve as leaders for others to follow suit. Crucial personnel for Life Sciences startups come forboth university and industry. Two roles that are crucial in social capital formation are the universityresearcher and the serial entrepreneur.

The University Researcher

University researchers play various important roles intechnology commercialization. With startups, dependingon the sector—biotech, medical device, diagnostic, etc.—university researchers are typically involved in a range ofroles from scientific collaborators to members of the advi-sory board or founding executive team. They can occupy acentral role in the kinds of social networks that facilitatestartups (see Exhibit 25). As such, developing the socialcapital of researchers is important.

The culture of the research institution can play asignificant role in supporting or not supporting faculty inthis role. As an example, the UC Davis Medical Center hasbeen focused on building up entrepreneurial culture in itsfaculty. A few years ago, the UCD Cancer Center was ableto channel resources into recruiting talented researchers.Because of the high quality research conducted there by fac-ulty and staff, the Center recently attained the designationas a National Cancer Institute (NCI) site. In addition, therecruitment efforts brought in entrepreneur-professors likeDr. Kit S. Lam, MD/PhD. Dr. Lam is Professor of Medicine


Significant faculty involvement is really going to

depend on the campus culture. Some faculty are

concerned about the impact of faculty startups on the

quality of teaching. Others consider the effect on

tenure; it is not clear whether involvement will be

viewed as a positive or negative. Conflicts of interest

need to be identified and clarified for faculty,

investors, and even students who will benefit by way

of more projects and employment. Fortunately, we

are moving in this direction. The Provost and Vice

Chancellor of Research are examining guidelines to

create the kind of culture and balance found at our

peer universities in the Bay Area.

- Dr. Kit S. Lam, MD/PhD, Chief of Division ofHematology/Oncology, UC Davis Cancer Center.

and Chief of the Division of Hematology and Oncology, serves on the Board of UCD CONNECT, andwas a scientific co-founder of Selectide, a biotech drug discovery company now owned by AventisPharmaceuticals.

Developing an entrepreneurial faculty culture will serve to create the kind of business leaders who maygo on to start or help start successful companies. Important to a sustainable Life Sciences cluster arecompanies that serve as wellsprings and those that are base hits. The founders of wellspring biotechcompanies such as Genentech, Amgen, Chiron, and Hybritech were university professors. These arehomerun companies. The culture of these companies is such that employees go on to start their owncompanies (see Exhibit 26). While there are obvious benefits of a homerun company, base-hit biotech-nology companies are equally important and share a similar dependence on the research professor.

In other sectors such as medical devices and diagnostics, university researchers may also play thefounding role in a startup but industry tends to play a larger role. In the medical device and diagnosticsectors, university researchers are generally utilized as consultants or to further certain research. Rolesin furthering research can take the shape of new product development, product testing, or performingdevelopmental clinical trials.

The Serial Entrepreneur

The serial entrepreneur is another key concentrator of social capital. This person is the startup veteranwho has started a few successful Life Sciences companies. Because of the social capital amassed throughthe startup process, this type of person has the critical resources to start, develop, and accelerate the growthof new companies as well as facilitate the process for others. The serial entrepreneur serves as a pivotalrole in the sustainability of a Life Sciences cluster (see Insert: “Putting the Pieces Together.”)


Exhibit 25: The Social Network of the University Researcher for the Biotechnology Industry78

The successful regions mentioned in Chapter 1 that formed a sustainable Life Sciences cluster wentthrough a series of steps that eventually cycled through the loops of regional capital. A critical mass ofstartups may lead to a successful base-hit company. A critical mass of base-hit companies can lead to a crit-ical mass of serial entrepreneurs. Finally, a critical mass of serial entrepreneurs will lead to Life Sciencesfocused funds that will provide direct and local capital to more startups. At anyone of these steps, a home-run company is possible but more likely at the later steps. Unseen in this scenario is the social capital thatis amassed during each step. Without the underlying social capital, the cycle will not progress as easily (seeExhibit 27).


Exhibit 26: Companies Derived from Genentech and Cetus/Chiron Personnel


Institutional Leadership

Some observers like Richard Dorf highlight institutional leadership as a crucial factor in building thecapacity of a region’s innovation. Dorf, a Professor of Electrical and Computer Engineering and Professorof the Graduate School of Management, has had occasion to think about this causality as an author ofbooks on Engineering, Technology Management, Sustainability, and Entrepreneurship. He believes “thestrong leadership of Stanford’s Provost Fred Terman and venture capitalist Arthur Rock enabled the devel-opment of Silicon Valley.” And “the emergence of similar leadership is necessary for the development ofa Life Sciences cluster in the Sacramento region.”

Indeed, Fred Terman as Dean of the College of Engineering and Provost of Stanford University helpedlay the groundwork for Silicon Valley.80 He was a social capital conduit and matched key people togetherand helped start companies. Terman developed and mentored talent such as David Packard and RussVarian who later went on to found HP and Varian. He also promoted the building of the StanfordIndustrial Park that housed notable Silicon Valley companies from the 1950s such as HP, Lockheed, Varian,Watkins-Johnson, and Shockley Transistor Labs.

Another example of the importance of regional leadership comes from San Diego. Former UCPresident and UCSD Chancellor Richard Atkinson created a significant part of the San Diego infrastruc-ture that even to this day facilitates the growth of new companies. After extensive consultation with thelocal public and private sector communities, UCSD CONNECT was created as a means to link the nec-essary forms of capital together to accelerate the new company formation process. Since its inception in1985, it has assisted more than 800 technology companies.

Current Status

The Sacramento Valley is at the early stages of social capital formation in the Life Sciences industry.Organizations do exist in the region that will help facilitate this growth and development. Jon Gregory,President of the Golden Capital Network, has been connecting entrepreneurs with regional investors andprofessional services since 1999. He believes that we have not yet reached a critical mass to form a sus-


Exhibit 27: Social Capital Accumulation Cycles Around the Serial Entrepreneur

tainable cluster. He recognizes the need to build external relationships outside the Sacramento region topush the industry into a developed cluster.

The Sacramento Valley has organizations that help make these connections for most types of startupsincluding Life Sciences startups (see Exhibit 28). These organizations help the region build its socialcapital. However, Life Sciences startups have their own needs and issues and may require specializedorganizations.

More can be done to accelerate the development of Life Sciences startups in particular. Incubation spaceexists at McClellan, but renovation into wet labs is needed. Incubation spaces are ideal for bringing entre-preneurs together in close proximity. Proximity is important to start the development of a network andculture of entrepreneurship.

UC Davis has recently picked up efforts in bringingentrepreneurship to campus both from within and fromthe outside. Progress is being made in the form of incu-bation space close to campus for university spinouts. TheRegents approved the Long Range Development Plansfor a University Research Park at the edge of campus nearInterstate 80. The Office of Research has increased itsvisibility in promoting university research and technolo-gy. It invited venture capitalists to campus and gave toursof research labs. The Office of UC Davis CONNECTheld a day-long event to introduce regional and Bay Areainvestors to scientists and the innovative and appliedresearch being done at the campus. The event includedlab tours and a networking reception. To further improveits progress, it held its first meeting with an ExternalAdvisory Board consisting of industry leaders from boththis area and outside the state.


Exhibit 28: Social Capital Enabling Organizations


About a year and a half ago, we started

encouraging our research community towards

the applications-end of research. At UC Davis,

we are emphasizing the need for bringing our

research expertise and results more directly to

bear on solving society’s problems. As a land

grant university we have the mission of helping

society by using the research generated here.

UC Davis has a tremendous presence in the

Sacramento region: we are the largest employer

in the area; we are extremely rich in

knowledge generation potential; and we have

the opportunity to be leaders in catalyzing

increased economic development in this region.

- Barry M. Klein, PhD, Vice Chancellor for Research, UC Davis

Putting the Pieces Together: Sacramento Valley’s Cardiovascular Medical Device Industry

The recent successes of JOMED and A-Med Systems can be traced back to an injection offederal funds that Aerojet General received from the government over thirty years ago.JOMED was recently acquired by Volcano Therapeutics, a Laguna Beach based medicaldevice company. Volcano decided to relocate their headquarters to Rancho Cordova afterassessing the region’s pool of talent and favorable research and business climate. The pur-chase was backed by Johnson and Johnson, venture capital firm Domaine Associates, andMedtronics.

A-Med was founded in 1997 by Walid Aboul-Hosn. The West Sacramento company has suc-cessfully raised over $60 million and stands at the brink of the cardiovascular assist marketworth over one billion dollars. “The Life Sciences focus seems to always be in biotech, butthe medical device industry is also regionally pretty dominant,” said Mr. Aboul-Hosn. Walidwas interviewed in order to gain insight into the success of the cardiovascular medical deviceindustry. His comments are summarized below.

Human and Social Capital:

Decades ago, Aerojet General tried to develop an artificial heart. In the late seventies theyspun out their efforts into Nimbus, Inc. During its span, Nimbus raised in excess of $20 mil-lion from the NIH. In the mid-eighties, Johnson and Johnson was involved in fundingNimbus Medical Inc., which later bought out Nimbus Medical. In turn, they have beenacquired by Bay Area-based Thoratec.

Nimbus was one of the leading companies - an engine of innovation - in this technology.Nimbus’s legacy is the base of engineers and scientists who emerged and stayed here. Infact, this base of human capital is what lured a German company interested in ventricularassist technology to Sacramento.

Sacramento State was an important part of the human capital equation as well. TheBiomedical Engineering Program was well connected with Aerojet and Nimbus since the earlybeginnings. It graduated many including myself who went on to become part of a founda-tion involved in the region’s success.

Intellectual Capital:Ventricular assist devices have been around for years starting with Aerojet’s medical deviceendeavors, but only recently have these devices grown in acceptance. The application forthese devices represents one of the largest medical markets with no treatment. Heart failureis one of the most expensive segments affecting government sponsored healthcare. There isno treatment other than drugs, so from a device standpoint, clinical trials savings would behuge – billions of dollars.Presently, cardiovascular companies are an informal group of five main companies, and thereis quite a bit of employee exchange at these companies.


Financial Capital:

I chose this area to start A-Med because of the specialized expertise located here. The BayArea venture capitalists involved were at first reluctant but agreed to try it for six months.That was in 1997…

Not having local VC is a factor. Back in 1998, Sand Hill Road venture capital community inthe Bay Area did not know what was going on in Sacramento. Since then, there have beensome VC’s who have settled in El Dorado Hills. Many VCs are retiring here—some are well-known, successful Bay Area transplants.

Money for seed and early stage funding is just starting to emerge in the region but not thetype for advanced investments in the medical device arena. We need bigger funding oppor-tunities in this area. However, Sand Hill Road is not too far away.

The Sacramento region’s Life Sciences endeavors can be successful despite the local fundinggap. Bay Area money is readily available if you can convince them that we have great start-up contenders up here. They will invest outside the Bay Area. In fact, they have severalinvestments that are a couple of hundred miles from their firms. It is not absolutely criticalthat we don’t have a Sand Hill road here.

RECOMMENDATIONS

• Provide more networking and education for local entrepreneurs. Scientists at the university need resources to support the commercialization of their research.

Successful entrepreneurs could provide guidance tonew entrepreneurs. Other early stage business con-sulting resources could also be made accessible.• Focus on people, not just technology. The region needs to recruit more industry entrepre-neurs and faculty to the region. A strong researchfoundation at UC Davis and good quality of life makethis region prime for attracting talent to the area. TheSacramento Valley is not known for being a hotbed inthe Life Sciences arena. Attracting more entrepre-neurs to the region will add to a developing criticalmass. Local universities could work with industry toidentify any overlapping technology needs that wouldbenefit both research and industry. Industry couldoffer additional incentives to attract faculty to theregion such as consulting opportunities. Quality oflife can also be a strong factor in attracting experi-


There is a critical need to have organizations that con-

nect us to the resources external to the Sacramento

market. UC Davis is opening up and beginning to

provide a venue to bring investors onto campus. The

other piece is the creation of an entrepreneurial culture

to build the research into a venture. UC Davis CON-

NECT, the Office of Research at UC Davis, which

includes the Technology Transfer Center, will enhance

this process. Once ideas are flushed out, then organi-

zations such as the Golden Capital Network can

provide a platform to further enhance the investment

readiness of the companies and provide access to a

key network of resources and investors both within our

region as well as neighboring regions.

- Jon Gregory, President, Golden Capital Networks

enced entrepreneurs from more inclement geographical conditions. Recruiting from places likeSeattle, and Minnesota have been successful for certain local medical device recruiters.

• Increase deal flow to local and outside investors. Both “in-reach” and outreach aspects of deal flow should be considered. In-reach needs to bedone at UC Davis to educate researchers about the opportunities in entrepreneurship. A steadysupply of promising technologies with large potential markets needs to flow from research tostartups. There is a strong perception that Bay Area universities have hundreds of technologiescoming through their technology transfer offices every year.

Together with in-reach, outreach to local investors and Life Sciences focused funds from outside theregion needs to happen in tandem. Facilitating both aspects of deal flow should be a well-defined,publicized process and a database for technology transfer be made available to university researchersand industry licensees.

• Form a Life Sciences specific industrial organization. This organization will lead the Sacramento Life Sciences Cluster concept forward. At the “viewfrom 30,000 feet” level, this organization could enact a comprehensive plan that would bringtogether the various recommendations of this plan. Additionally:

It will also help establish metrics so that the region can measure its success in some manner. It should be funded by the economic community development efforts and local industry. The

best examples of groups such as this included government, state, or affiliated entities but were notled by these organizations.

• Leverage existing local clusters. The region’s success outside the Life Sciences arena was mentioned earlier. Guided by coopera-tion between clusters and perhaps technology brokering, the Life Sciences cluster can be bolsteredand accelerated with the support of these other clusters. Experienced management and some typesof workers may be able to be transferred between industries. Investors from these more tradition-al areas need to be educated about the opportunities that exist in the Life Sciences.


The working team employed the Clusters of Innovation theory as a basis for defining the SacramentoLife Sciences cluster and for structuring such choices as those relating to prioritizing investments, allocat-ing resources and planning for growth. In addition, the working team drew on learning derived from theMonitor Group’s experience in the area of regional competitiveness. It leveraged the knowledge of theparticipants on the working team regarding the development and evolution of industry clusters and theforms of intervention that positively and negatively influence them.

Conventional thinking places clear boundaries between industries and focuses exclusively on an indus-try’s internal structure and dynamics as the space for competitive advantage. Cluster thinking does notdisregard the relevance of the “inside” of an industry, but broadens the terrain for competitive advantageto capture cross-industry linkages. The broader cluster approach to Life Sciences recognizes and placesvalue on the cross-industry interactions among multiple constituencies in the Life Sciences cluster, itsinputs, related industries, buyers and government (Exhibit 29).

The broad perspective enabled by the idea of clusters permits a comprehensive understanding of theprosperity of a region. At a high level, prosperity depends on a region’s ability to create a business envi-

59APPENDIX

appendixCLUSTERS OF INNOVATION THEORY

Exhibit 29: Determinants of a Regional Business Environment

ronment that fosters innovation and productivity (Exhibit 30). Strong, competitive clusters are a criticalcomponent of a good business environment and are the driving force behind regional innovation and ris-ing productivity. Clusters allow companies to operate more productively in sourcing inputs, accessinginformation, technology and needed institutions, coordinating with related companies, and measuring andmotivating improvement. Clusters allow each member to benefit as if it had greater scale or as if it hadjoined others without sacrificing autonomy.

Cluster theory implies that the four key determinants of a region’s business environment must beconsidered as the region plans for its future success. However, it is important to note that the theoryrecognizes the unique nature of each cluster. Thus, the four determinants have differing degrees of rel-evance depending on the cluster and region in question.

In the Life Sciences cluster, the primary determinant of the regional business environment is factor orinput conditions (Exhibit 29). The quality of specialized inputs and related conditions are particularlyimportant to the success of the Life Sciences. This action plan focuses on the following three factors aspriorities for the Los Angeles Region: Technology Commercialization, Cost of Doing Business, andWorkforce and Training.

The additional determinants are the Context for Firm Strategy and Rivalry, Demand Conditions, andRelated and Supporting Industries. Context for Firm Strategy and Rivalry refers to the “rules, incentives,and pressures governing the competition in a region.” The presence of rivals creates healthy competitionbetween local firms. The quality of Demand Conditions has “a strong influence on the process of creat-ing and improving products and services.” These Demand Conditions are present to the extent thatsophisticated local customers create an efficient feedback mechanism to catalyze innovation. Related andSupporting Industries stimulate the efficient communication and flow of ideas within and across clusters(Exhibit 29).


Exhibit 30: Prosperity Chain

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Cambridge University.

2. Porter, M. (2003, April 30). Introduction, Taking Action for Tomorrow: Bay Area Life Sciences Strategic

Action Plan: 1.

3. DeVol, R. (2000, August 8), Blueprint for a High-Tech Cluster: The Case of the Microsystems Industry in the

Southwest, Santa Monica: Milken Institute.

4. DeVol, Ross C., et al. (1999, July 13). America's high-tech economy: Growth, development, and risks for met-

ropolitan areas. Santa Monica: Milken Institute.

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