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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Moving a promising research discovery to market is a complex, time-consuming and costly undertaking. The following chapter provides a general overview of how critical business requirements come together to shape the way bioindustry develops. These factors include: a trained workforce, access to capital, formation of joint ventures and alliances, and the technical and regulatory requirements associated with product development and manufacturing.

Workforce and Training

Biotechnology research and product development requires highly educated, skilled employees. As new products enter the manufacturing stage, the employment demand will expand for skilled technicians who have two years of higher education and intensive job training. Demand for research and development and administrative and marketing staff may remain the same. 255 Most Bay Area biotechnology companies have focused on attracting highly educated professional scientists and devoted relatively little attention to how they recruit, evaluate, and hire production workers and lab technicians. Turnover of laboratory technicians and production jobs is high. 256

Two Bay Area community colleges have established a two-year biotechnology certificate program. Several other colleges are considering such programs, and the state community college system is developing a statewide program. College programs related to training biotechnology technicians include: animal health technology, animal science/agribusiness, aboriculture/natural resources, electro-mechanical technology and robotics, electronics technology, floriculture, food science and technology, horticulture, landscaping, and medical laboratory technology. 257 Special training will also be required for service workers employed in bioindustry. For example, janitors and sanitation employees will need to be able to " [work] with sophisticated, expensive, and possibly hazardous materials and equipment." 258

Some states (such as Massachusetts and North Carolina) are developing biotechnician training programs. For example, the state-funded North Carolina Biotechnology Center recently published Teaching Basic Biotechnology: DNA-based Technologies, and produces videos and other educational materials. The Center encourages local biotechnology companies to offer public school teacher training courses. 259

The U.S. Department of Energy has provided a grant to the National Education Development Center to develop industry-wide skills standards for bioscience technicians. Regional California examples of training programs include Berkeley Biotechnology Education, Inc., in cooperation with Vista Community College, and Amgen company's partnership with Ventura Community College. The NOVA Private Industry Council (Santa Clara County) and De Anza Community College have also joined together to offer biotechnology industry training programs.

A broader perspective on the competitive importance of California's bioindustry workforce requirements and training needs can be developed by looking at the workforce needs of Europe's bioindustry companies. European companies are growing at a rapid rate, requiring a ready and increasing supply of trained labor. 260

European companies are having trouble finding trained workers to fill research and technician jobs. The major reasons cited in a recent survey was the failure of colleges and universities to adequately train students to meet the requirements of the industry.

Like Europe, California requires sufficient well-trained personnel to maintain the state's global strategic biotechnology advantage. Careful coordination between California community colleges and other training programs and the biotechnology industry is critical. However, many biotechnology companies are apparently unaware of community college programs and their graduates. 261 The Bay Area Bioscience Center has developed a plan to a bridge this gap including active outreach and marketing by colleges and various suggestions about how biotechnology companies can work with colleges to define training needs and technical assistance. 262

Financing Bioindustry

At all stages of development, bioindustry companies require much capital. Biotechnology companies raised an estimated $5.2 billion in 1993, with $2.9 billion coming through strategic alliances and $2.3 billion coming through public and private financing. Bioindustry capital needs and the level of investor risk are directly related to where a company is in the product development cycle: research, product development, clinical or field trials (if required), and manufacturing. Currently, about 70 percent of pharmaceutical biotech related companies have products in the pre-clinical animal testing or human clinical trials stage. A second group of companies (about 20 percent) are near the release of important clinical data about their product or have completed their clinical trials and are awaiting FDA approval for their first products. These expect to become profitable in the last half of the 1990s. The remaining companies (10 percent) have a product on the market and an established cash flow. 263

The bioindustry product development cycles average more than twelve years and development costs are high. Companies with a product spend as much as 81 percent of their sales revenues on continuing research and development. Development costs of one new therapeutic drug average about $125 million.

A typical biotech company needs between $250 million and $500 million to fund development until profitability. To move 50 companies from the clinical trials phase to profitability could cost $12 to $25 billion. It can cost $150 to $200 million just to build a manufacturing plant for a new pharmaceutical. Typically, a larger firm becomes a major stockholder once a small research or start-up company's product has been approved and shown to have a significant potential market. Government grants have often made a significant contribution in the research phase but rank last as a financial source for manufacturing.

Survival Index for Biotechnology Companies

Ernst and Young has developed a Net Burn Rate and Survival Index for publicly-owned biotechnology companies.264 Net Burn rate indicates how much cash is necessary to keep the business operating from month to month. The Survival Index provides a method for estimating how long it will take a company to exhaust its cash reserves based on its expenditure rate. The Survival Index 265 decreased to 25 months from 34 months in 1994, a decline of 26 percent. An estimated 50 percent of the publicly held companies had less than two years of cash to cover their expenses (Table 6). Small, privately held companies were in the most precarious financial shape. These trends continued into 1994:

While mid-size, large, and top-tier companies managed to lower their net burn rates from last year, the small companies group monthly burn increased from $321,000 per month to $423,000. The monthly burn rate for median public company actually increased from $665,000 last year to $726,000 this year. As the same time, the overall survival index for the industry has declined dramatically, from 25 months in the prior year to just 16 months in the current year. 266

Table 7 shows that the Survival Index varies by market segment from year to year: the ag-bioindustry experienced the largest reduction in 1993; therapeutics and suppliers occupied this position in 1994.

Private Sources of Capital Investment and Financing

Traditionally, venture capitalists have generally fund much of the early stages of a biotechnology company's growth. 267 Small biotechnology companies (under 50 employees) have obtained about 30 percent of their financing from venture capitalists. 268 In 1995, venture capitalists shifted proportionately more funding into less risky later-stage companies with products already in clinical trials, a broad product platform, or good new research ideas. Venture capitalists are helping to support companies they have invested in the regulatory approval process. 269 This trend may change in 1996 which saw a record number of new startups funded by venture capitalists. 270

Private equity sources and profits from operations are the next largest financing source, at about 20 percent. Initial public offerings and follow-on public offerings provide 10 percent of financing, and the remainderof the funding is raised through a number of sources, including debt, strategic alliances with other firms, and government grants (See Chart 4).

Federal government research and development grants are a significant source of capital for a small number of firms. For example, six Bay Area biotechnology companies recently won $40.8 million in Defense Department grants to develop new technologies. 271

Venture capital investment 1993-1994 was distributed among bioindustry segments as shown in Chart 6. 272

Once firms start producing commercial products, sources of financing typically change. Venture capital declines and self-financing through public offerings and strategic alliances grow in importance.

Uncertainties about new technologies, product development, product testing and regulatory approval, manufacturing cost, and the expected size of the product's commercial market tend to rule out any significant use of debt for guaranteeing loans, particularly for the 90 percent of biotech companies that do not have a proven product.

In 1995, nationally, the $3.5 billion raised through public offerings was only exceeded by that in 1991, when about $3.9 billion was raised. Biotechnology public offerings may have been over-valued in the 1980s. Uncertainties about the impact of federal health policy, unexpected delays in clinical or field trials and product problems in highly regarded companies, and the large number of biotechnology companies going public made new public equity financing difficult to secure in 1994. The 1994 readjustment probably brought stock valuation more into line with likely payoffs. However, for many small companies, valuation may have dipped below cash value per share at that time. 273

The very significant improvement in direct investment in biotechnology in 1995 was attributable to the pharmaceutical industry who invested $4.5 billion in biotechnology firms. 274 Some of the larger firms are purchasing whole research firms or are heavily investing in a number of them. Also, good news from clinical trials and speedier federal approvals may have improved the investment atmosphere. Investment managers are most interested in investing in the health care services sector, medical-device companies, and in pharmaceutical stocks. 275

International Investment

A 1991 study examined foreign investment in San Francisco Bay Area's bioindustry, looking at three main sources of foreign capital with ownership implications: equity, acquisitions, and ventures or alliances (including licensing and contract research). The study found that:

Over the fifteen year period from 1975-1990, foreign investors provided only around 10% of the equity funding for Bay Area bioscience, but more than 50% of the venture or alliance funds and over 90% of the acquisitions in dollar value. Overall, around 59% of the funds from these three sources originated outside of the U.S., although almost two-thirds of this was the result of a single transaction (Hoffman-La Roche's purchase of [of a majority of] Genentech). Even without Genentech, foreign capital composed about 38% of the nominal capital inflow to Bay area bioscience companies since 1975. 276

The level of foreign investment varies with the public offerings market. During market downturns, such as occurred around 1984, foreign investment filled the gap left by the drop in domestic public investments. A surge in foreign investment began again in 1988 and continued through 1991 and then dropped off. 277

The strong emphasis on quarterly earnings that characterizes U.S. capital markets is not well suited to many bioscience ventures. In contrast, foreign investors, including the Japanese, take a longer term view . 278

Joint Ventures and Alliances

Generally, large firms enter into alliances and agreements with small biotechnology companies because the larger firm's market share is perceived to be vulnerable in the long run to biotechnology innovations. Many diversified companies have formed strategic alliances with small biotechnology companies in order to obtain access to new research in exchange for financing. Often the alliance requires the smaller firm to sacrifice some degree of autonomy in order to gain access to capital and markets with high barriers to entry. A 1988 study of the Bay Area bioindustry firms with 50 or more employees, found that "41 percent are subsidiaries of multi-national corporations and 55 percent have marketing, licensing, joint venture, royalty, and rights agreements with these corporations." 279 Such alliances may also provide needed operating assistance and expertise as well as forestall bankruptcy. 280 In 1994, significantly more than half of young companies were gaining a substantial portion of their revenue from strategic alliances, medium sized companies about half, and larger companies only about one-fifth of their revenues in this way. 281 Such alliances may forestall company failures. 282

In the San Francisco Bay Area from 1980 to 1990, 153 biotechnology-related strategic alliances were formed, representing at least $1.1 billion in value, nearly one-half from foreign sources, to biotechnology firms. 283 This, in part, reflects the global nature of the pharmaceutical industry. 284

Some analysts have raised some concerns about potential negative effects from foreign investments:

Studies of the impact of foreign investment have reached different conclusions. Two studies found that:

A more recent study of foreign investment in biotechnology arrived at different conclusions:

The issues raised by the increasing role of international investment in California's biotechnology industry are not unique. It is part of a general international foreign investment and partnering trend characterized by Japanese and European countries investing more heavily in the United States. 290 International corporate clusters are emerging whose members are tied together by both equity and non-equity relationships like the need for new products and access to markets. 291 A recent RAND study found that such alliances can be beneficial:

The results show positive innovation and economic benefits from alliance participation, particularly international R&D alliances. To the extent that cooperating firms generally benefit from alliance participation, the major policy implication is that government incentives should be structured to permit or even facilitate, rather than discourage, such alliances. Indeed, international R&D alliances should be encouraged, and "transnational" trade and antitrust policies adopted. 292

Government Sources of Investment and Financing

Federal Government Funding

Federal financial support for biotechnology has grown steadily since the mid-1980s. The Federal FY 1995 biotechnology research budget is $4.3 billion and emphasizes research related to health and the environment. 293

The total federal investment in biotechnology was estimated to be approximately $3.5 billion in FY 1991 with nearly 80 percent awarded through the National Institutes of Health. 294 Other federal agencies support biotechnology-related programs in agriculture, energy, and environmental research, with additional funding from the National Science foundation, National Institute of Standards and Technology, and the Environmental Technology Institute. The federal government has also fostered joint research and development projects between industry and federally-supported universities and laboratories. Federal policies protect private sector commercial rights to subsequent discoveries. 295

The Federal Small Business Innovation and Research Program (SBIR) funds high-risk small business research and development efforts that have a good chance of producing a marketable product. There are three levels of SBIR loans: research, product development, and commercialization. Each loan phase is typically for around $100,000. Often companies successfully complete the research phase but require a six-month bridge loan to keep operating until an SBIR loan is received for the product development or commercialization phases.

The Federal Coordinating Council for Science, Engineering, and Technology, in a supplement to the President's FY 1994 budget, selected biotechnology research for special emphasis. Twelve federal agencies involved in this research identified four common strategic objectives for this Biotechnology Research Initiative:

The Federation of American Societies for Experimental Biology issued a report in December 1994 , "Consensus Conference on FY 1996 Federal Research Funding in the

Biomedical and Related Life Science," calling for additional funding, noting its positive impact on the economy and employment. For the U.S. to keep its current competitive edge, the Federation recommended a 10 percent increase in the National Institutes of Health budget for FY 1996, from $11.3 billion to $12.5 billion. 297

State Government Funding

According to a 1993 CRB review of state and local economic development programs listed by the Federal Clearing House for State and Local Initiatives, six states have biotechnology programs: Massachusetts, North Carolina, Michigan, Colorado, New Jersey, and Washington. 298 These states and others use a mixture of loan, tax and other incentatives to help fund and develop biotechnology in their state. In 1991, 33 states invested an estimated total annual funding of $150 million in biotechnology.

Higher Education

Twenty-eight of the 33 states that invest in biotechnology relied primarily upon investments in higher education institutions to develop new technology. 299

Loan Programs

State programs that provide capital funds generally do not provide loan guarantees or loans to biotechnology companies because:

Most loans are relatively small compared to the typical capital needs of a biotechnology company. Still, state involvement in a biotechnology project can be benefical because it may attract private investors. Some examples of state loan and other funding programs gleaned from a six-state CRB survey include: 300

Industrial Development Bonds

New Hampshire recently attracted Alpha-Beta Technology from Massachusetts to a state- owned biotechnology park. It did this by offering the company $30 million in taxable industrial development bonds (IDBs) to construct a manufacturing facility. Independent experts evaluated the company's product as being a good risk even though it lacked FDA approval.

California has also used taxable industrial development bonds to assist biotechnology companies. However, obtaining a letter of credit from a bank to guarantee the bonds has become a problem. (A letter of credit is often required to sell taxable industrial development bonds.) San Diego has issued tax-exempt industrial development bonds to help finance the expansion of Invitrogen, which is building a manufacturing plant in the city's bioscience industrial park. 301 The city set aside land in the park for the company's expansion that will be used as collateral for the five million dollar loan.

Joint Public/Private Ventures

The Michigan Biotechnology Institute (MBI) brought biotechnology companies together to form the Michigan Biotechnology Association in 1993. MBI will be working with the Association and a local business development corporation to develop at least two bio-business incubators and to attract private investment.

Budget Set Aside for Competitive Research Awards

Each year New Jersey sets aside 10 percent of the budget of the state's Advanced Technology Centers (one of which is biotechnology-related) to create a competitive research pool of $3 to $4 million. Each Center solicits joint venture proposals from private companies to develop a specific product. Independent experts review the proposals. Grants may be as high as $300,000. The center receives exclusive licensing authority or a royalty on a successful product.

Sales Tax Deferral for Products Requiring FDA Approval

The Washington State Legislature is considering a bill that would grant a five-year sales tax deferral for bioindustry products requiring FDA approval. The company would have six years to pay the state back without interest. The deferral would extend to both new and existing companies.

Government-Supported Biotechnology Centers

Over the past twenty-four years more than 100 biotechnology centers have been created to serve the needs of the local biotechnology industry. A survey conducted by the Institute for Biotechnology Information found that currently there are "84 biotechnology centers in 32 states and the District of Columbia." 302 These centers are generally supported by state government or regional funding agencies. The majority of the centers responding to the survey are university affiliated (77 percent). Eighteen percent are state-supported, stand-alone centers. Since 1988, there has been an average 50 to 60 percent increase in their budgets, which range from as little as $20,000 to $21.5 million. (Non-university center budgets tend to be twice as large as university center budgets.) Federal and state governments accounted for over 60 percent of the funding with industry (14 percent) and universities (15 percent) accounting for the remainder.

According to the survey, the impact of biotechnology centers varied by type of center. Center director self assessments reported, "The highest-rated impact area of the university centers was `strengthening the research base, followed by `bringing together the biotechnology community.' . . . The non-university centers rated their impact as [strong in] `bringing together the business community,' followed by `strengthening the research base,' `assisting new business development,' and `assisting licensing and technology transfer.' " 303 Forty-eight of the centers surveyed reported assisting 412 companies with direct financial support. Non-university centers assisted about five times as many companies with financial support as university centers:

U.S. biotechnology centers may assist as many as 700 companies with financial support. The centers indicated that they are assisting some 624 companies in other ways . . . and all 84 centers may be responsible for assisting over 1,000 companies. 304
These same biotech centers helped to establish 98 companies, with non-university centers accounting for the majority. Looked at from the perspective of the entire industry, biotechnology centers have played an important role in developing new companies, with as many as one in six having received a significant amount of help. 305

It is difficult to know how the companies receiving biotechnology center services would rate the services. Nonetheless it appears that government-funded biotechnology centers have played a significant role in the research and business development of the industry.

Research and Development Funding

Funding University Research

Major universities with substantial commitments to biological research have been instrumental to the creation and growth of California's bioindustry, which is clustered around Stanford University, and University of California campuses in the Bay Area, Los Angeles, and San Diego (a new cluster is developing around Davis). 306 The University of California itself supports 22,000 biomedical jobs and spends $700 million annually on biomedical research. Biotechnology patents account for 50 to 75 percent of University of California license revenues. 307 Intellectual capital produced by the university, in the form of researchers and well trained technicians makes it possible for California's bioindustry to grow. 308

University research focuses on basic scientific research while private companies pursue applied research. A close collaboration permits commercialization of new discoveries and rapid resolution of manufacturing scaling-up problems. The University of California supports a $1.5 million New Ventures Program to encourage technology transfer. 309 However, University technology transfer appears to vary by campus. For example, a survey of biomedical firms based in Los Angeles County reported that, "unlike [in] other regions, their ability to contact, and partner with the major local research university, University of California, L.A., is burdened by red tape, ideological barriers, and a lack of focus and commitment on the part of the research community." 310

Maintaining the University of California's cutting-edge research role requires substantial public investment. Research facilities must be upgraded regularly to attract top students and faculty and to allow state-of-the-art research, which in turn supports development of new industrial products and techniques. Both the availability of funds for expanding research facilities and local concerns about biological research--ethical and environmental issues may limit the ability to expand.

The growing emphasis on biotechnology-related research has affected university biology research agendas by encouraging a classroom and research emphasis on molecular biology, cloning, and associated methods. There appears to be a corresponding de-emphasis on whole-plant- and whole-animal-level research, such as traditional plant breeding, and a decrease in systems-level research programs, such as agroecology, farming systems, and social impact assessments. This is significant because no one can predict which areas of research might lead to the next generation of important discoveries required to extend California's dominance of biotechnology. 311

Private Industry Research Funding

A 1994 survey of 152 biopharmaceutical firms found that they spent $3.1 billion for research and development in fiscal year 1992, an average of $20.1 million per company. In contrast to the general decreasing trend for U.S. companies, the surveyed biopharmaceutical firms had increased their research expenditures by 89.3 percent 1991. 312 In 1994, biotechnology public companies increased their research and development funding by 12 percent, up from $3.7 billion to $4.1 billion. However, this actually represented a 2 percent drop from the previous year when measured as a percent of revenues spent on this activity. 313 Costly clinical product testing trials account for biopharmaceutical companies' large research outlays.

A 1994 survey of U.S. agbiotech companies found that research funding had increased by 43.6 percent in fiscal 1993, for a total of $84.9 million, and an average of $5.7 million per company. 314 This increase followed a 39.6 percent increase in research and development funding the previous year. Again, the large increase is due to the significant costs associated with moving a product from research through product field testing trials.

Product Development

Completing the research and achieving promising results are only early steps in developing and bringing a biotechnology product to market. Costly field tests, product safety tests and/or clinical trials must be completed and receive a positive review from the federal government before manufacturing prototypes can be developed or the product marketed. For example, clinical trials are critical for determining the effectiveness and proper dosage of a new drug. Sharply increasing costs of clinical trials have pushed the current estimated total cost of development of each approved drug to $300 million. 315

The escalating cost of conducting clinical trials is a major problem for biopharmaceutical companies. A contributing factor is the trend to conduct more complex trials over a longer time in order to test promising compounds for treating more than one illness or condition. Biotechnology companies contend that FDA inconsistency in applying standards, and unpredictability about when FDA reviews will be completed, are major blocks to market success. 316 New biopharmaceutical product development and approval time increased substantially from 8.1 years in the 1960s to 15 years in the early 1990s. A significant portion of this increase is attributable to time spent meeting regulatory review standards. 317 Recent changes in the FDA appears to have shortened this process for at least some products in late 1995 resulting in increased investments by venture capitalists in the San Francisco Bay Area. 318

The most difficult product transition phase is from preclinical research to clinical trials. There is a 46 percent probability that a given research project will not make this transition. 319 Table 10 presents the transition probability that "...a [biopharmaceutical] project will reach a subsequent development stage." The development stages are: 320

The data indicate (Table 10) that the critical transition points for biological pharmaceuticals are from the Preclinical to Phase I clinical trials, and less so from Phase II clinical human trials to Phase III (widespread human testing).

Table 11 reports the "market entrance probability" defined as the probability that a project will progress to the marketplace from a given development stage. The chances of an average product increase considerably as each phase in the approval process is completed. Again, the greatest problem is getting through the preclinical phase and Phase I.The factors most likely to impede clinical progress, from most to least frequently cited (the total exceeds 100 percent, as multiple responses were allowed) are: 321

Additional problems include a tendency to "over-promise" on a product and to underestimate the time frame in which it can be delivered; a lack of experience with the multidisciplinary requirements of drug development; and a mistaken belief that the FDA will omit certain requirements due to a company's opinion that the drug holds great promise. 322

Ernst and Young surveyed biotechnology company CEO opinions about how clinical trial results could be improved. CEOs recommended various actions including: 323

Some companies have responded to regulatory problems by moving product development offshore. The California Health Care Institute, in a survey of 40 California biotechnology company CEOs, found that: "...70% of California health care technology companies conduct initial new product development outside the U.S." 324 This trend is being encouraged by venture capitalists. Shorter review times and a more predictable regulatory scheme allows companies to quickly enter the foreign market and make early sales.

Bioindustry Manufacturing

Scale-up from Basic Discovery to Production

Moving a promising biotechnology research discovery through the product testing and federal approval process are only the first steps towards producing that product. Each step in the scale-up from test tube to flask, to small fermentation vessel, to pilot plant, to large-scale production facilities involves new scientific questions. The effects of temperature, sheer forces, and other factors on living material must be assessed and managed at each step. Solving these problems requires multi-disciplinary research and considerable funding.

In the bioindustry's infancy, conventional wisdom held that investing in manufacturing process development did not increase a company's value as much as basic research. However, as more and more products reach the market and compete with each other, rapid process development may provide a key strategic advantage today. There are an increasing numbers of small bioresearch companies in California with products in clinical trials or that have recieved FDA product approval to suggest that there may be a sustainable need for pilot manufacturing plants in California. 325 According to one industry observer, " By far the biggest risk for a biotech company is that its management is unable to execute the business strategies" necessary to produce and market a product. 326

Some companies have chosen to develop dedicated pilot manufacturing facilities to design and test large-scale product manufacturing options. This strategy has proven to be enormously expensive and may place large amounts of investment capital at risk. The cost of such facilities can range from $15 to 25 million or more. For example, Synergen invested $65 million in a Boulder, Colorado, facility but the newly developed product was not approved by the FDA. 327

Lack of investment capital makes it very difficult for many small companies to build their own manufacturing facility. Some companies have chosen to have an independent company assist them with their pilot manufacturing. More than 30 companies offer contract manufacturing services to the industry world wide. 328 There are a very limited number of contract facilities in the U.S. Many are being built by European manufacturers or are located on the East Coast. One may be built through a public/private effort in Chula Vista, California.

According to Patricia Seymour, manager of biotechnology services at Collaborative Laboratories, a contract manufacturing company:

Most multi-user facilities are designed to handle, on average, three to four clients per quarter. Given the number of new products entering clinical trials, a new facility will absorb only a fraction of the demand. 329

Some of the pilot manufacturing need may be met by sharing idle existing bioindustry manufacturing capacity in California. 330 Several large companies (such as Baxter in Glendale, California) have already begun this practice. Problems include conflicts of interest between companies that are producing similar products, and lack of continuous plant availability. Conversely, large corporations that offer contract services may also help in developing workable business and marketing strategies. In any case, expansion of the bioindustry cluster into manufacturing may provide an opportunity for the public sector to facilitate development by supporting the development of pilot manufacturing plants. Such an effort could keep more the fruits of the state's research at home.

Manufacturing Facility Construction

Bioindustry manufacturing facilities are highly specialized due to the following product requirements:


Water is a critical component in all of the stages of the manufacturing process. Bioindustry manufacturing requires higher water usage than other high tech. 332 For example: "for every kilogram of recombinant microbial protein drug, a biopharmaceutical company might need 15-30,000 kilograms (liters) of water. . . . Thirty thousand liters is...the volume of a very modest swimming pool . . . ." 333 The quality of the water is also important. According to the City of Chula Vista's High-tech/Biotech Zone Issue Paper:

San Diego area biotech firms need an uninterrupted water supply for their future growth and particularly in their move to manufacturing. According to William Rastetter, CEO for IDEC PHARMACEUTICAL Corp., "The biopharmaceutical industry needs assurance that there will be adequate water for manufacturing as our companies grow. The demand for our products may increase 35% per year following product launch. If our water usage is frozen at the previous year's level, we'd have to ration our products . . . ." [Italics and capitalization in original]334
Hazardous Materials Disposal and Spill Cleanup

In addition to traditional waste streams such as garbage and sewage, bioindustry generates three additional types of waste: hazardous/toxic waste, radioactive waste, and biological waste. Biotechnology companies are subject to existing California and federal hazardous/toxic waste regulations governing transport and disposal of hazardous wastes which require inactivating or degrading biologically active material. 335 County departments of health services also regulate biological wastes, requiring a plan and permit. 336 Some biotechnology waste products may be recyclable or useful for other purposes, such as fertilizers.

Biological research uses radioactive materials to trace certain proteins, antibodies, and other substances. Radioactive waste includes research chemicals, glassware, research gowns, research animals, and various paraphernalia. Currently, biotech companies must store this waste on site or ship it to the Barnswell, South Carolina, radioactive disposal facility. Eleven states plan to develop low-level waste disposal facilities. 337 However, this is a highly contentious issue, making it difficult to predict what will happen. Meanwhile, only Barnswell, South Carolina, accepts radioactive wastes from outside its region. However, because of the small quantities of radioactive waste typically generated at each California bioindustry site, shipping is often not economically feasible.

Existing state and federal hazardous materials legislation addresses chemical and radioactive spills and illegal dumping. Exactly how these laws extend to large spills of biologically active substances or the illegal dumping of biologically active wastes is unclear, since these substances are not specifically identified in the governing legislation. For example, while it is illegal to dispose of biological waste in a dumpster, it is not illegal for biological wastes to be in a dumpster. 338

In the judgment of Office of Emergency Services, current reporting procedures are probably adequate to detect the occurrence of a spill or illegal dumping of biologically active materials. 339 However, existing OES state response and state training guidelines for emergency response workers do not specifically address biological spills or illegal dumping. Standard government response references that assist fire service and other personnel with chemical spills do not cover these types of incidents, nor do they provide protocols for decontamination of equipment, protective gear, or exposed people. Bioindustry companies are working closely with their local fire districts to address many of these problems. 340

Air Pollution

Like other research and manufacturing firms, bioindustry is subject to air pollution regulation and has many of the same issues. Bioindustry activities do not usually involve combustion or incineration of materials. However, according to the City of Chula Vista, they may require the use of evaporative agents that have the potential to release volatile organic compounds and other emissions that may require local air resource board permits. Depending on the local Air Pollution Control District, companies may be required to reduce the number of automobile trips to the facility to meet local air pollution requirements. 341

Liability Issues and the Availability of Biomaterials

Product liability concerns may make it difficult to obtain the biomaterials necessary for manufacturing: "Materials that are reasonably biocompatable with use in the human body (for example, polyester for vascular grafts, polyurethanes for pacemaker leads, and silicone elastomers for hydrocephalus shunts) are becoming increasingly difficult to obtain from primary producers." 342

The reason is that chemical companies have determined that unpredictable and excessive liability costs of doing business with manufacturers of implantable medical devices no longer allow unrestricted sale of standard polymers to these customers. Under current U.S. product liability laws, any remote supplier of commodity materials can be joined in lawsuits involving medical products that are alleged to have failed unexpectedly, not lived up to expectations, or caused complications. As the sales of such materials represent a tiny fraction of the business of chemical companies, but account for a major part of their liability or legal costs, it is expedient for the companies to opt out of the medical device market. 343

Medical device manufacturers claim that the shortage of raw materials has resulted in a shortage of medically implantable devices. Research involving such materials is being increasingly shifted to countries with less stringent liability standards. 344

Next Chapter: Public Policy Options

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