Bioindustry: A Description of California's Bioindustry and Summary of the Public Issues Affecting Its Development
By Gus A. Koehler, PhD.

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PUBLIC POLICY OPTIONS


California is a world leader in biotechnology. The industry is important to the state's economy and is poised for additional growth. A multitude of complex, interacting critical factors will determine how the industry evolves and whether California continues to benefit from its dominant position.

Critical Factors

Several key factors shape the way bioindustry public policy issues emerge:

Is There a Role for Government?

There is no single, accepted, comprehensive theory of regional industrial growth, but rather a set of partial theories that explain or emphasize different aspects of these processes. This is particularly true for an industry that involves an entirely new technology such as bioindustry. As demonstrated in this paper, there are so many complex issues that a government agency or business consortium could not find a single optimum economic development policy and recognize it as such.

Further, it is very difficult to determine which government economic intervention strategies may work for a particular and unique historical moment. Certain types of intervention may only be effective in combination with other public or private initiatives. While a particular policy may succeed in one area, such as improving overall growth in profits, it may fail in another, such as increasing the number of associated jobs or per capita disposable income.

Many policy issues are beyond the state's ability to control such as FDA product approval. Probably most decisively, a series of complex interactions make it difficult to predict which state government policies are most likely to contribute to a specific short-term future outcome for any one bioindustry company, let alone the bioindustry in the long run. Complicating factors include:

Recent research does indicate that state governments can help to provide a supportive environment for industry development. 346 Government can act as a catalyst and provide short-term incentives to encourage bioindustry to build capacity or to grow or attract needed services and venture capital. 347

Research

Continuing support for California's university and college systems could directly contribute to the growth and development of the state's bioindustry (p. 22 * ). Options include:

Biotechnology Ethical Issues

As biotechnology pushes to the frontiers of human knowledge, it raises serious and important ethical issues. Universities, government, public interest groups, scientific associations, industry organizations, and private companies are struggling to address them. The emergence of a forum to hasten the development of a general ethical structure for guiding public policy debate might be beneficial. By taking the lead, California could help to define national policy in a way that is consistent with the needs of the state's bioindustry. Possible options are:

Genetic testing and the availability of health insurance coverage continues to be an important public policy issue. Existing California statutes prohibiting such discrimination could be brought into conformity with the suggested guidelines developed by the Working Group on Ethical, Legal, and Social Implications of the Human Genome Project and the National Action Plan on Breast Cancer. (p. 64).

Economic Development

California Biotechnology Development Strategy

States that rely upon a strategic assessment of their infrastructure and bioindustry needs and opportunities, can more effectively assist the development of biotechnology. 350 A strategic assessment typically weighs a state's strengths and weaknesses relative to what is needed to develop an industry and assesses long term costs. 351 For example, a state or region which lacks a university with significant biotechnology research capabilities has a major weakness. Alternatively, a commitment by community colleges to work closely with bioindustry to train workers could be a strength.

Some state efforts build on a state strategy that sets broad conditions and relies upon decentralized decisions in government, universities, and the private sector, to determine the final allocation of funds, tax benefits, permitting variances, and other benefits. 352 For example, Michigan, New Jersey, and North Carolina have all developed strategic plans for bioindustry development. These states have also targeted government funding for capital construction projects and grant assistance. California government could spotlight biotechnology as a key industry, showing why investors should consider California firms over others and as a means to attract new biotechnology firms.

Strategy Options

The California Council on Biotechnology could design a state bioindustry economic development strategy. The strategy could:

Economic Policy For A Global Biotechnology Industry

California's biotechnology industry is part of a strong trend toward global technological and economic integration. One analyst points out, "a key competitive advantage of the United States lies in our ability to attract international investment. . . . Only the United States brings together the state-of-the-art plants of the best Japanese, European, and U.S. companies. This translates into a powerful performance advantage." 353

California could seek to maximize the flow of foreign technology investment and foreign companies to the state. Options include:

Bioindustry Networks

Business networks typically involve a group of three or more private sector firms (and perhaps a government agency) working cooperatively through a contract, joint agreement or other formal relationship to enhance their mutual competitiveness. For example, small biotechnology firms frequently partner with large pharmaceutical companies to obtain capital or to gain access to market distribution systems.

Small business networks may form to engage in any of the following bioindustry activities:

Bioindustry network development might be encouraged in the following ways:

Product Development

Studies indicate that if a biopharmaceutical product is to fail, it is most likely to do so as it moves from the research to the clinical testing phase. Success is related to appropriate research design and a company's knowledge of regulatory requirements.

Health Care

Manufacturing

California is an important biotechnology research center, but has limited manufacturing facilities. This is unfortunate, particularly given the state's large investment in its public universities and colleges, which have played a key research role. Industry surveys indicate that new biotechnology companies tend to locate near major research universities, and that a well trained workforce and venture capital availability are more important than tax breaks. Proposals for growing and attracting contract manufacturing and large scale bioindustry manufacturing operations might be included in the state bioindustry development strategy suggested above. Consideration could be given to:

Regulations

Financing

The following bills, introduced during the 1995 legislative session, would provide various tax credits to biotechnology companies:

California's 1993 Investment Tax Credit applies to the biotechnology industry. It allows a 5 percent tax credit for qualified manufacturing equipment including construction of "clean rooms." Generally, investment tax credit provides a sales tax credit for capital investments and an income tax credit for a portion of investment costs.

Workforce Training

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