San Diego has one of the world’s leading concentration of biotech industries. But with its growing popularity, biotech companies cite high costs, demand and competition as challenges that come with the territory.
The San Diego Business Journal’s List of Largest Biotechnology Companies features 50 companies ranked by local total employees as of Aug. 1.
“We have one of the best environments for biotechnology, but it’s not a given,” said Terry Ghio, director of environmental health and safety for Ligand Pharmaceuticals, Inc., No. 6 on The List. “As these issues are more publicized , traffic, high costs of living, this will affect our standing as ‘the place to be.'”
High energy costs continue to affect companies throughout San Diego, but for biotech companies, which depend heavily on energy for research and development, not having enough reliable energy sources could result in the loss of years of valuable research.
– Utility Bills Up Expenses
Ligand, which develops products for cancer and skin diseases, experienced a 100 percent increase in energy costs. Its energy bill last month was a $90,000 increase from last year’s payment for the same month.
But more important than an increase in costs is the cost of losing valuable research, according to Christiane Sheid, vice president of finance and communication.
One of the major issues Ligand is trying to address is finding adequate and reliable energy sources, something California lacks, she said.
According to Sheid, San Diego’s three existing power plants do not generate enough power to supply its nearly 300 biotech companies. Sheid predicts there won’t be an increase in power plants for another three to five years.
A new power plant to be built in Otay Mesa is in its early planning stages and is expected to be complete by 2003. It will be the first major power plant to be built in San Diego County in nearly 30 years.
The lack of enough generated energy “determines whether research can continue or if it will experience a blackout,” Sheid said.
– Blackouts Could Wipe Out Projects
Companies are given relatively no notice that a Phase 3 or scheduled blackout is going to occur. Occurring at virtually any time, a blackout can wipe out a two-year research project that is nine-tenths complete, dissolving the chance to discover a life-saving drug, Sheid said.
“A shutdown at any time costs us real money and real time. Some (researchers) may have to scrap (a project) and start all over again,” Sheid said.
Ligand has brought on an energy team and cut down on energy usage through decreases in air conditioning use and turning off hall lights. However, Ghio said in working with hazardous chemicals and infectious material the “availability to cut down more is not really there.”
“We are looking for long-term strategies, not just Band-Aiding issues that exist today,” she said.
Another trend affecting pharmaceutical manufacturers is outsourcing, where the making of pharmaceuticals is being given to outside companies.
Chip Lindgren, managing principal of A.G. Scientific, No. 48 on The List, said that outsourcing is a double-edged sword. “This increases the burden and regulations that we have to meet in order to stay in business, while at the same time in order to stay competitive you have to add more services,” Lindgren said.
– Outsourcing Can Be Costly
Outsourcing increases manufacturing costs and a company may have to go through five or six different parties just to orchestrate the transaction.
Despite increases in costs and regulations, customers are easily accessible and located close together which provides more business in a competitive market.
“(San Diego) is the most consolidated pocket for biotech in the country,” Lindgren said. “Customers are highly concentrated unlike San Francisco or even Washington, D.C., where companies are spread out and harder to do business with.”
With a large number of biotech companies located within a small vicinity, competition is abundant and the employment turnover rate is high.
“It is a highly competitive market out here, but you also have a deep pool to choose from , UCSD, Salk Institute, Scripps Research Institute,” Lindgren said.
Hillary Theakston, investor relations analyst of Diversa Corp., No. 16 on The List, agrees.
– Industry Is Competitive
“It (competition) is certainly an ongoing challenge,” she said. “Diversa has been extremely successful in recruiting and retaining employees.”
At nearly 170 employees, Diversa plans to reach 200 by the end of the year. Its employee increase has prompted a relocation of the facility within Sorrento Valley, also to be done by the end of the year.
Theakston credits Diversa’s heads-up on competition to its number of years in business.
“Founded in 1994, we have a head-start in developmental technologies and patenting that came out when we first started,” she said.
While newcomer Pharmatek Laboratories, Inc., No. 50 on The List, didn’t find recruitment a problem, it did find that getting started wasn’t that simple.
Established in 1999, Pharmatek Laboratories President Dr. Jeffrey Bibbs said, “It was tough getting the name out, but we’re building a reputation for ourselves.”
Since it specializes in chemistry product development, Bibbs found competition among other companies was not as great as it would be for companies that specialize in multiple areas.
“We tried to develop a company that builds on the positive, once a company comes they will always be back,” he said.
