San Diego Business Journal

Seven of the top 10 companies appearing on the San Diego Business Journal’s Largest Public Companies list are related to the life sciences.

In fact, the three that dominate the top five, Life Technologies Corp., CareFusion Corp. and Illumina Inc., are prominent in their markets.

However, some might wonder how a traditional Navy town such as San Diego became such a showcase in the life sciences?

Duane Roth, chief executive officer of Connect, the nonprofit trade group promoting entrepreneurial activity in the region, says that San Diego’s position as one of the top biotech regions in the world grew out of research projects undertaken by the Navy, coupled with two other fortuitous events a half century ago.

“What’s grown up here grew out of the military,” said Roth. “The foundation was the defense contractors here, and then came the University of California campus 50 years ago.”

He said UC San Diego’s emphasis on the life sciences easily merged with the high-technology of defense, and thus was born the biotech industry.

Salk Institute’s Influence

He also noted that the famed Salk Institute for Biological Studies, founded by research pioneer Jonas Salk — who developed the polio vaccine in the early 1960s — helped position San Diego as ground zero for biological research and development.

“The defense contractors, the arrival of the new UC campus and the opening of the Salk Institute changed the face of San Diego,” said Roth. “From that beginning, (the life sciences industry) has branched out into so many things, from medical devices to golf clubs to drugs to clean tech. That’s what is phenomenal about San Diego.

“And it’s going to serve us extremely well the next 30 to 40 years,” he added. “But the roots are there in Navy town.”

Roth notes that the 83 research institutes in the region have contributed to the launch of more than 600 biotech companies large and small, public and private in the region.

Many have emerged to become top companies like Life Technologies, Illumina and CareFusion, companies that began small with great ideas and grand visions.

Gail Naughton, former dean of the college of business administration at San Diego State University who’s leaving to run her own life sciences startup involving hair restorations, says biotechs and related companies “clustered” around top universities and institutions.

Successful Cluster Strategy

That San Diego is so strong in the number of public companies comes as no surprise to her, given the long history.

“If you look at the top areas, it is Boston, North Carolina and San Diego, and it’s going to continue to be that way,” she said.

And the fact that seven of the top 10 public companies come from the life sciences sector demonstrates the success of the strategy local officials began pursuing in the early 1990s of focusing on key clusters, such as biotech and medtech, to grow the economy.

The San Diego Association of Governments, or Sandag, lists 16 clusters, which together grew more than 20 percent in the 1990s, compared to 14 percent for the overall economy.

The life sciences cluster has exploded in the past 10 years, as companies pursue research into potential life-saving procedures around the human genome.

Sandag Chief Economist Marney Cox says many companies in the region have been successful because of their adaptability.

“They have been able to migrate to new clusters, and re-invent themselves, which is good for the future.”

Room for Growth

He said while San Diego has benefited immensely from the rise of life sciences, there is still room for growth, especially in providing for jobs at the lower end of the spectrum, such as manufacturing.

“Some more evolution can occur,” he said. “We can do better. We don’t yet have a fully integrated system.”

He suggested the next group of large public companies to emerge could help address that challenge by bringing more production into the region.

Meanwhile, Naughton said the top three companies on the list, Life Technologies Corp., Illumina Inc. and CareFusion Corp., “are extraordinary successes,” which have become case studies on what to do right.

“If other companies follow what those companies have been able to do successfully, then we will be able to become a real global leader for life sciences,” said Naughton. “What these companies have done is not only continue to have a very strong entrepreneurial spirit, but they offer a portfolio of customer-focused products and services, very much keeping in touch with their markets, and asking their customers, ‘How can we make your life easier?’ That’s been a tremendous, tremendous formula for success.”

Naughton, however, warned that there are clouds on the horizon that could impede the launch and growth of bellwether companies in the life sciences.

“Although there has been a lot of great science and a lot of good clinical results, the reimbursement hasn’t been there,” she said. “So some companies are struggling because they have the technology but it’s not being reimbursed by insurance companies. That’s the hurdle. Someone’s got to pay for it.”

Tom York is a contributing editor for the San Diego Business Journal.