California: America's Industrial R&D Powerhouse
SPOTLIGHT ON CALIFORNIA
The Golden State has been at the forefront of private sector innovation in the United States for many years. What factors lie behind its success?
IN 1938, Bill Hewlett and Dave Packard, two electrical engineering graduates from Stanford University, started building audio oscillators in a garage in Palo Alto, California. By 1962, their company, Hewlett-Packard (HP), was listed in Fortune magazine's top 500 US companies by revenue. In 1999, it spun off its measurement-instruments business into Agilent Technologies, which broke the record for the largest initial public offering in Silicon Valley history. HP is now one of the world's leading electronics manufacturers, with revenues of US$126 billion in 2010 and more than 320,000 employees worldwide. HP's iconic story — along with those of Apple, Intel, Yahoo and Google — has influenced nearly every fledgling Californian company hoping to repeat its success. It also highlights one of the state's defining features: its strength in industrial research and development (R&D).
" California is a key marketplace for the exchange of ideas from around the globe. "
Darlene Solomon, Agilent Technologies
According to the US National Science Foundation (NSF), California businesses invested US$64 billion in R&D in 2007 — more than Michigan, Massachusetts and New Jersey combined. Overall, California accounts for 22 percent of all R&D in the United States. A long history of high-tech breakthroughs is just one of the factors that have made the Golden State the industrial R&D powerhouse that it is today. It has a “whole ecosystem of innovation”, says Darlene Solomon, chief technology officer at Agilent Technologies, based in Santa Clara. A January 2011 study commissioned by northern Californian life science trade association BayBio and the California Healthcare Institute (CHI) expands on this further, listing the following factors as having helped the state's biomedical industry to thrive: leading-edge science; experienced venture capital; a diverse, well-educated workforce; a group of serial entrepreneurs; a culture that appreciates risk-takers and that does not penalize failure; healthy scepticism about time-honored institutions; and freedom to ignore boundaries. In addition, California's world-class public and private universities attract billions of dollars in federal research funding and produce thousands of US postdoctoral scientists and engineers each year. The state is also home to national laboratories such as Lawrence Berkeley and Lawrence Livermore. These elements and more apply across industries — from biotechnology to computer technology to renewable energy — and help drive job creation, even in tough economic times.
Clusters of innovation
California boasts a diverse range of industries spread across several major regional clusters, including the San Francisco Bay Area, Sacramento, Los Angeles and San Diego. In northern California, Silicon Valley encompasses a chain of cities south of San Francisco — including Menlo Park, Palo Alto, Sunnyvale and San Jose — but the high-tech companies whose products gave the area its name are actually spread throughout the wider San Francisco Bay Area. The semiconductor research the valley is famous for is now translating into solar energy R&D, which makes use of the silicon and thin-film manufacturing technology perfected there. The city of South San Francisco, home to Genentech, is known for its concentration of biotechnology and pharmaceutical companies.
In southern California, the San Diego area hosts several institutions that have made the city a hub for biomedical research, such as the University of California, San Diego (UCSD), the Scripps Research Institute and the Salk Institute for Biological Studies. “San Diego has grown up over the last 30 years or so as one of the premier areas for doing biotechnology,” says Paul Laikind, chief business officer of the Sanford-Burnham Medical Research Institute. Laikind, based at Sanford-Burnham's headquarters in La Jolla, north-west San Diego, says biotechnology companies in the city are concentrated in a small area. “Because of that, it's a very collaborative entrepreneurial environment,” he explains. A non-profit institute, Sanford-Burnham has taken advantage of San Diego's industrial infrastructure to help commercialise its research: since 1987 it has spun off about a dozen start-up companies. Laikind himself founded four start-up companies in San Diego, all of which went public, before joining Sanford-Burnham in 2009. He says those in the region involved in biotechnology share a desire to achieve results by working together rather than competing with each other: “Our competition is whether we can make a drug that can work or not, which means a lot of collaboration between companies and institutions like ours.”
A further geographical advantage of California is the state's west coast location, which makes it a natural crossroads for international scientists and engineers. “California is a key marketplace for the exchange of ideas from around the globe,” says Agilent's Solomon. “Especially as Asia has taken off, I think California has been positioned [in the market] very well as a point of access and a good cultural fit in terms of that emerging growth.”
Although California's domination in industrial R&D has been achieved largely through the efforts of the private sector, the state does provide generous incentives for businesses to do science. Companies that increase their R&D investment from the previous year get a tax credit equivalent to 15 percent of the difference, says Andrea Jackson, director of state and government affairs for Genentech. “[The California government is] always incentivizing companies to do more R&D,” she says. According to the California Budget Project, which carries out independent fiscal and policy analysis, 2,483 corporations claimed US$1.2 billion in R&D credits in 2008.
In return, companies in California are generous about reinvesting their earnings in R&D. Agilent dedicates around 10 percent of its roughly US$6.5 billion annual revenue to R&D globally, a proportion that Solomon says is above average among its peers. “In some of our businesses, where we're focusing on future growth, we're investing far more than that 10 percent,” she adds.
California also attracts far and away the most venture capital (VC) in the United States — US$11.6 billion in 2010, nearly five times as much as the second ranked state, Massachusetts. Furthermore, California ranks first in the country in number of jobs and revenues for venture-backed companies, according to a 2011 study by global business analysts IHS for the US National Venture Capital Association, with 60 percent of the VC investments in California going to the software, energy, and biotechnology sectors.
Industrial innovation in California is well supported by its academic institutions. Stanford University, a private institution, is based at the heart of Silicon Valley and fosters strong relationships with companies — many of which are based at the Stanford Research Park, founded in 1951 when the university leased some of its land to emerging technology firms. The research park offers several incentives to encourage industry-university interactions: businesses are able to sponsor joint research projects with Stanford faculty and students, invite faculty to join their boards or act as consultants, offer internships to students and use the university's libraries.
SRI International, a non-profit contract research institute, split off from Stanford University in 1970 and now employs more than 2,100 people. The institute has conducted research for over 90 private and non-profit businesses, and also licenses and commercializes the technology it develops with federal funds. Norman Winarsky, SRI's vice president of ventures, says its four spin-off companies that have gone public are now worth US$20 billion.
The University of California (UC) has also forged enduring partnerships and collaborations with industry. The UC system, spread across 10 campuses, is the state's flagship higher education institute and is a powerful engine for job creation, says Steve Kay, dean of the division of biological sciences at UCSD. The university has “generated the pipeline of trained scientists and technologists that has really fed into the high-tech, the biotech, and now, more recently, the clean-tech explosions,” he says. A UCSD study published in February 2011 revealed that the 156 active UCSD-related companies are directly responsible for 18,140 jobs.
The UC system also hosts four Gray Davis Institutes for Science and Innovation, each a collaboration between several campuses, that are purposed with accelerating technology transfer and increasing interactions between the state, UC and industry. They are the Center for Information Technology Research in the Interest of Society (CITRIS), the California Institute for Quantitative Biosciences (QB3), the California NanoSystems Institute (CNSI) and the California Institute for Telecommunications and Information Technology (Calit2).
California industry also provides the most support for local academic R&D in the United States. During the 2009 fiscal year, industry-financed R&D expenditures at Californian universities and colleges totalled US$506 million, according to the NSF.
Funding for higher education, however, has been harder to come by in the wake of the recent economic downturn. The UC system is facing financial challenges as a result of the state budget deficit. For the 2010 fiscal year, UC had a budget shortfall of US$1 billion, which it has tried to make up with faculty furloughs, tuition increases and programme cuts. On a more positive note, certain research avenues are just starting to grow. In 2004, voters in California passed Proposition 71, a US$3 billion bond issue to fund stem-cell research in the state. The California Institute for Regenerative Medicine, a regulatory agency, allocates the funds. In 2010, as a result of those grants, five new stem-cell research facilities were dedicated at UC Davis, UC Los Angeles (UCLA), UC Irvine, Stanford University, and the University of Southern California in Los Angeles. A sixth centre, the Sanford Consortium for Regenerative Medicine, is under construction in San Diego and due to open in 2011 for collaborative stem-cell research between the Salk Institute, Scripps Institute, UCSD and Sanford-Burnham. The hope is that the research will eventually provide new opportunities to spin out companies focused on stem-cell therapies.
California has also been hit hard with unemployment, which now exceeds 12 percent. The biomedical research industry, though, has not shed as many jobs as other high-tech sectors, according to the BayBio/CHI study. The biofuels industry is also one of the fastest growing in terms of job creation, says Gail Maderis, president and chief executive of BayBio.
Agilent's Solomon says there are jobs available, but workers need to be flexible. For new recruits, the company looks for ‘T-shaped’ people — researchers who are highly skilled in one area but who can also communicate horizontally across fields. Winarsky of SRI adds that scientists working on innovative research have good job prospects: “They are high-premium people.”
A question on many people's minds is how the state, strapped for funds, will deal with its budget crisis. Genentech's Jackson says she does not anticipate the corporate R&D tax credit being trimmed back. “So far the legislature has felt a compelling interest to keep those tax credits in place to continue to grow the industry,” she says. Pharmaceutical companies like Genentech take comfort in the fact that their products remain necessary, even in lean times. “We're in a flat growth spell right now, but the industry's pipeline is healthy,” Jackson says. “We anticipate continued job growth in the next decade.” California's history of innovation, from HP's inception to today's efforts in stem-cell research and solar technology, will provide a strong foundation for future growth.
A venture under pressure
Scientific innovation has long powered the San Francisco Bay Area’s economy, but community and political challenges could undermine progress. From the integrated circuit to synthetic insulin, mail-order genetic tests and ride sharing, scientific discoveries and technologies developed by researchers and engineers in the San Francisco Bay Area have fuelled the local economy for decades. Part of Nature Index 2018 Science Cities But while politicians and urban planners around the world try to emulate the Bay Area’s path to economic success through research prowess, locals and social scientists are asking whether the region’s model of growth is sustainable. The Bay Area is burdened by the high cost of housing, income inequality, homelessness, gridlocked traffic, and inadequate public transportation. These threaten to undermine the region’s status as an economic dynamo. “The viability of the innovation economy is in question,” says Benjamin Grant, a director at the non-profit San Francisco Bay Area Planning and Urban Research Association (SPUR). “The problems the Bay Area is facing are the problems of success,” says Grant. The northern California metropolis is among the top 50 science cities in the Nature Index, measured by its contribution to the authorship of 82 high-quality research journals. When assessed solely on the output of its corporate institutions, it ranks number one. The question is whether the Bay Area can, in the face of mounting social problems, retain these companies and the brilliant researchers whose work they depend on. Network effects In the 1970s, the Boston area, with its prestigious universities and long-established corporations, would have been a good bet to become the tech industry hub, says AnnaLee Saxenian, a political scientist and dean of the School of Information at the University of California, Berkeley. But an unusual culture in the Bay Area of open exchange between researchers, companies and universities, as well as strong ties to venture capital, she says, fostered science and engineering research, particularly in Silicon Valley. This sharing and information free-flow arose, in part, from the values of the 1960s hippie counterculture, which was centred in San Francisco. “Engineers were reacting against the corporate culture of the east coast,” says Saxenian. Talented scientists and engineers came to the Bay Area from around the world to have access to networks, prototyping and venture funds. And venture capitalists looking for the next big thing, says Saxenian, found it in labs at Stanford University, and at the University of California’s campuses in San Francisco, Davis and Berkeley. Source: Nature Index The city has attracted many high-achieving scientists in the natural sciences. Zora Modrusan, who develops gene sequencing and analysis techniques at the biotech company Genentech, says the strength of the biotech industry drew her to the Bay Area from Canada 19 years ago. “It’s very dynamic and interactive,” she says. Since 2015, Modrusan has co-authored some 20 articles in the index journals, developing methods for analysing the functional significance of genetic changes in cancer and other diseases. Her current work seeks insights into the heterogeneity within tumours. James Hedrick, a materials scientist at IBM Research–Almaden in San Jose, says his work has benefited from exchanges with the region’s biologists, machine-learning experts, and catalysis chemists. Hedrick engineers new polymers and has co-authored more than a dozen articles in index journals over the past three years. Initially, IBM was using these materials in part of its chip-making process; now, Hedrick is developing them for devices to deliver targeted drug therapies. Source: Nature Index Backlash If you ask a local in San Francisco, you might hear a different take on what the Bay Area’s booming innovation economy means: inadequate public transportation and gridlocked traffic (made all the more galling by the privately owned ‘tech buses’ pulling into public bus stops), growing income inequality, the displacement of communities of colour, and homelessness. Perhaps the most severe challenge in the region is housing. Real estate company Zillow estimates that the median monthly price for a two-bedroom rental in San Francisco averages US$4,130, towering over the nationwide average of US$1,442, and more than a thousand dollars above New York and Boston. At last count, in January 2017, there were 7,499 homeless people in the city; these numbers have remained fairly steady since 2013. Grant says the current crop of innovation-driven companies has failed to engage with these civic problems. For better or for worse, he says, “the world of research and innovation has been a world apart in California.” Source: Nature Index/Dimensions from Digital Science Although the tech industry has increased demand for housing and driven up prices, it does not carry the full blame for the city’s social ills, says Alex Schafran, a geographer at the University of Leeds, in the United Kingdom, who studies California’s housing crisis. Broader cultural forces and political failures have contributed. Most people agree that the Bay Area needs more housing, but no one wants tall buildings to go up in their own neighbourhoods, says Grant. And under California’s system of government, even if regional planning authorities agree on the need for more housing and public transit, local communities can veto such construction. Building outside developed areas is restricted by conservation regulations that protect large swaths of park lands. These woes are eroding quality of life in the Bay Area, says Grant, and making it ever more difficult for companies and universities to hire and retain the best researchers and students. Companies are also beginning to move elsewhere, he says. As further evidence of the trend, San Francisco’s output in the index has declined in recent years, from a fractional count of 1,723.8 in 2012 to 1,676.35 in 2017. Such regional declines are hardly unprecedented. “At one time Detroit was the centre of innovation in the United States, and Detroit collapsed,” says Grant. But he sees hope in moves by state legislators. California Senate Bill 827, introduced in January 2018 by San Francisco’s State Senator Scott Wiener, would have enabled the construction of more housing near public transportation hubs. The bill didn’t pass, but that it was even proposed is a sign that the tides may be shifting, says Grant. Source: Nature Index Saxenian is more reserved in her projections, and for good reason. Her first paper about Silicon Valley predicted that the high cost of living would drive the tech industry out of the area. That was in the 1980s. “I was wrong,” she says. The same conditions that drove the development of the Bay Area’s strong culture of scientific innovation make it resilient. Saxenian sees other threats to research innovation in the Bay Area: repeated cuts to the University of California’s budget, and restrictive immigration policies, in particular. “Immigration has been beneficial both to the Bay Area and to other countries,” says Saxenian, who has written a book (The New Argonauts) on the subject. “Talent goes both ways,” she says. But this mutual benefit gets lost in the national political conversation. Schafran, who grew up in the Bay Area, says researchers and engineers need to get more involved in addressing its social ills — but there are no quick fixes. Since they’ve been building for decades, “it’s gonna take another 30 years to get ourselves out of it,” he says. “We can’t do this overnight.” If researchers remain detached and don’t think locally, it could be to their own detriment. “You may be on the top of the world for the moment, but don’t get too comfortable,” says Grant. This article is part of Nature Index 2018 Science Cities, an editorially independent supplement. Advertisers have no influence over the content. Search our job roles in California
LZTR1 is a regulator of RAS ubiquitination and signaling
In genetic screens aimed at understanding drug resistance mechanisms in chronic myeloid leukemia cells, inactivation of the cullin 3 adapter protein-encoding leucine zipper-like transcription regulator 1 (LZTR1) gene led to enhanced mitogen-activated protein kinase (MAPK) pathway activity and reduced sensitivity to tyrosine kinase inhibitors. Knockdown of the Drosophila LZTR1 ortholog CG3711 resulted in a Ras-dependent gain-of-function phenotype. Endogenous human LZTR1 associates with the main RAS isoforms. Inactivation of LZTR1 led to decreased ubiquitination and enhanced plasma membrane localization of endogenous KRAS (V-Ki-ras2 Kirsten rat sarcoma viral oncogene homolog). We propose that LZTR1 acts as a conserved regulator of RAS ubiquitination and MAPK pathway activation. Because LZTR1 disease mutations failed to revert loss-of-function phenotypes, our findings provide a molecular rationale for LZTR1 involvement in a variety of inherited and acquired human disorders.
Meditation on a Caltrain: Understanding where to travel to next
Exploring options and thinking laterally about where you can use your scientific skills might be the key to successfully transitioning into industry, learns George Busby. This piece was one of two winners of the Science Innovation Union writing competition, Oxford. “This is downtown San Francisco, our train’s final stop. Can all passengers please detrain? All detrain please. All detrain.” Perhaps it was the heady fug of jetlag that made this broadcast particularly amusing to my UK-English language sensibilities, but I “detrained” all the same and stepped into the crisp morning air of the Californian rush hour. I was on the west coast to visit two genetics start-ups as part of a whirlwind three-day tour of the US. With a long postdoc and several first author papers tucked into my belt, I wanted to see if these credentials would pass muster in the tech haven of Silicon Valley. I’ve always found the loneliness of solo work-travel to be highly amenable to strategic thought, and this American adventure was an opportunity to reflect on why I was there and what I wanted. Back in Oxford, a few months earlier, I had begun to line-up my post-postdoc career options. A new and exciting big-data research institute has just opened and my supervisors were keen that I apply for money to start my own research group there. Excited by the prospect of doing interesting science somewhere new, I began to piece together the semblance of a research proposal with collaborative support. But then a strange thing happened. As the project began to take shape, the light at the end of the tunnel — the prize of scientific independence — began to feel not closer, but further away. Ahead of me were late nights and early mornings of writing pages and pages of a scientific proposal. After that, a year-long wait to find out that I’d been unsuccessful (a mere 15-20% of applicants for an early career Wellcome Trust Sir Henry Dale Fellowship get funded). Despite everything, my future was dependent on a number of factors that were out of my control. On top of this, there was the burgeoning realisation that no one actually reads the academic papers that I write. This is no moot point: writing papers is the main purview of a research scientist, and the central way we both communicate our results and measure success. However, compared to the proportion of the world’s population who can read, the number of people that had sat down to ingest my latest, dense, and fascinating (to me at least) treaty on the population genetics of Africa, three years in the making, was minuscule. The words of a colleague rang in my head: “99.9% of scientific papers just don’t get read”. Did I really want to spend the next 18 months slogging it out against funding agencies to get my own money just to do yet more science that no one was going to read? I forced myself to think more fundamentally about what I wanted to do. If I wanted to use my science to make a real and lasting impact and do things that make a real difference in the world, then writing academic papers is only one route to success. So, I blew the cobwebs off my LinkedIn account and started to hit up my small network of commercial contacts to investigate what companies out there in the big wide world might value my hard-won scientific expertise. This led me to California, where the streets are paved with gold and to the heart of the world’s tech industry. I’m by no means the first, and will certainly not be the last, person to have grown tired of the uncertainty of pursuing an academic research career. Despite the best efforts of university career departments, the option of staying in academia has always felt like the only real way to keep doing the science that I wanted to do: any other path would force a compromise or feel like I was quitting. But, perhaps I’d been looking at things the wrong way round. Rather than proposing whatever research was ‘hot’ at any given moment to funding bodies to maintain a decent university career trajectory, I should instead consider what my scientific ambitions are, then find the place to do them without limiting myself to academia. This way of thinking — that I could achieve my scientific objectives without compromise in either academia or industry — has been made possible for two reasons. Firstly, by luck as much as design. I work in a field, human genomics, where there are increasing options for work outside of universities: the number of commercial enterprises is exploding. If there was ever a time to jump into industry, it’s now. Second, I’d underappreciated how employable I am. I’ve led methodological and analytical research projects, written papers, and worked to communicate my science. Coupled with some in-depth genomics knowledge, these are all highly desirable qualities in the biotech world. So I reached out to two Californian companies, both of which do scientific research that’s not a million miles away from my day-to-day. Visiting them allowed me to see with my own eyes how work in industry differed from academia. I was surprised to learn that research jobs at both companies were not purely about making marketable products: there was a certain amount of trial and error to the work that they do, and not all of the research that they do is expected to end up as a viable product. They were also both mature enough to have teams of people working on marketing, accounts, PR, and software engineers, who were supported by the sales of the main product, but not scientists themselves. The possibility of collaborating with these people is exciting, providing new avenues for communicating and justifying the work of the research teams. Importantly, both companies sell my flavour of science to millions of customers — working for them would mean I could impact orders of magnitude more people, orders of magnitude more quickly than any scientific research I could hope to do in a university over the next few years. If impact and scientific reach is what I want, then this seems like a far better way to achieve it than waiting for a year to hear on the unlikely success of a research grant. I was beginning to feel like Lady Justice with my balance scales measuring the benefits and costs of academic versus commercial employment. Sure, academic research is dominated by uncertain funding cycles and can feel glacially slow at times, but that’s not necessarily a bad thing. Some view it as a privilege to be able to devote one’s time exclusively to fully understanding a specific question, and there’s no denying the satisfaction that comes with finding stuff out. Plus, I’ve been fortunate enough to work with incredibly talented people who’ve given me the intellectual freedom to spend my days thinking about the things that I want to think about. There’s clearly a lot to be said for being able to concentrate on the questions that one believes to be important and worthwhile. But with a wife and a growing family I’ve also reached the age where the pursuit of such scholarly freedom might appear not just selfish, but irresponsible. In common with around a third of UK families, both my wife and I work full time. Without my wife’s additional income, my postdoc salary would give us a higher household income than around 42% of the population. So, despite almost ten years at university (and the debt to prove it) without two incomes, we’d be struggling to get above the median of household earners nationwide. And the double whammy of living in the least affordable city in the UK with the cost of childcare increasing at three times inflation year on year, even with two incomes, there is little monthly return on my educational investment. Moreover, from a purely financial point of view, it pays to work in industry as a life scientist, with salaries being up to 30% higher than academia. As peers from school and university began to financially pull away from me, first by buying cars that are younger than ten years old, and more recently upgrading their small flats for family houses, I’ve consoled myself in the knowledge that although I can’t match them, I’m doing what I love. Who needs things anyway? But when you’re spending a third of your take-home pay on rent and another third on childcare, there’s little chance of saving much of the remaining third. Realising that you’re never going to be able to buy a house in the city where you work starts to get mentally draining. Can I really justify doing the science I do, which, let’s remember, no one actually reads, to just about get by? Of course, I’m far from being a pauper, or even a JAM, but wouldn’t it be nice for either my wife or myself to reduce the hours we work to spend more time with our children, without having to drastically change our quality of life? There is of course risk of job security associated with working in industry, particularly for an early stage start-up. But, there is also risk associated with staying in academia, particularly given the number of PhD and postdoc scientists in the workforce, many of whom will be pushing for the same jobs. And, in industry there is the distinct possibility that your pay could match your scientific success, which is not the case when you’re tied to a public sector pay scale. More than anything, my visit to California not only demonstrated that it’s possible to do interesting and worthwhile science commercially, but that perhaps it’s the only way to do some science. It would take many years and much grant money to generate the sorts of big datasets that some tech companies now have control of. If, as a scientist, you’re interested in answering some of the big questions, perhaps it pays to ask yourself whether the best way to achieve your ambitions is through a start-up, rather than academically. What’s more, at least in genomics, it’s beginning to feel like detraining from the academic express onto the industry platform might be the best way to do the most relevant and engaging science. George Busby is a postdoctoral research associate in statistical genomics at the Wellcome Trust Centre for Human Genetics, University of Oxford.