Biotech Jobs Germinate as San Francisco Diversifies Economy
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By Rob Waters
May 15 (Bloomberg) -- A once-vacant rail yard 2 miles from downtown San Francisco is coming to life as a center of biotechnology and transforming San Francisco’s economy beyond tourism and financial services.
San Francisco is too dependent on those industries, says Mayor Gavin Newsom, who’s using a tax cut and other incentives to woo businesses with growth potential. He’s especially targeting biotechnology, which has a foothold in the city’s emerging biomedical district known as Mission Bay.
Pfizer Inc., the world’s largest drugmaker, will open a five-story biotechnology headquarters in Mission Bay next year. At a so-called biotech hotel, where start-ups rent space, a scientist studies tissue samples for Groningen, Netherlands- based Brains On-Line BV. Partners at Versant Ventures and other venture capital firms on the hotel’s top floor can look out at the industry they’re funding.
“This area is going to pop,” said Gail Maderis, chief executive officer of FivePrime Therapeutics, the first biotechnology company to move to Mission Bay. “We have pharma and biotech companies coming through all the time and they look and see Mission Bay growing. This will be the largest life sciences hub west of the Rockies.”
Newsom, 41, sweetened the appeal to biotech companies by waiving the 1.25 percent payroll tax through 2015, allowing extra parking spaces and expediting building permits.
“Five years ago, there were three biotech companies in the city; now there’s 47,” Newsom, a Democrat running for California governor, said in an interview. “I have great confidence that things will continue to advance.”
Growth by Diversifying
Biotech companies added 300 jobs in the city last year as it lost a total of 20,000. About one of every seven jobs in San Francisco is tied to tourism, out of a daily workforce of about 550,000, according to the state Employment Development Department.
“Diversifying the economy is absolutely a good thing to do,” said George Jouganatos, an economic consultant in Sacramento who teaches at California State University. “San Francisco has a large financial sector, which is in decline, and the tourism business is in somewhat of a decline.”
The city’s budget this fiscal year is $6.5 billion, said Ted Egan, chief economist. Hotel tax revenues fell 30 percent in February and 20 percent in March from a year earlier, he said. Hotel occupancy fell to 60 percent in February from 74 percent a year earlier.
The biotechnology cluster is growing on a former rail yard south of downtown. The site once crisscrossed with sidings and spurs was deserted in the 1960s when shipping shifted across the bay to Oakland.
University Leads Way
After a redevelopment plan was approved in 1998, the University of California at San Francisco built three biomedical research facilities, a community center and four apartment buildings for students and staff. The biotech industry eventually followed.
FivePrime, a closely held company that’s identifying protein-based therapies, moved in 2005 from South San Francisco, home of Roche’s Genentech Inc. Savings from the tax waiver are enough to pay one scientist, said Maderis, 51. That’s a big boost for a 100-employee startup that’s 10 years from being profitable, she said.
Having a Mission Bay address helps recruit employees, said Alan Sachs, vice president of Merck & Co.’s research division. Whitehouse Station, New Jersey-based Merck’s Sirna Therapeutics unit will fully occupy its quarters next year, he said.
New York-based Pfizer will bring 120 workers when its building is completed, said Elizabeth Power, a spokeswoman.
Multiplier Effect
San Francisco has 840 biotech jobs so far, 600 of them in Mission Bay, said Michael Cohen, director of the mayor’s office of economic and workforce development. Each position spurs creation of another 1.3 jobs for waiters, janitors, accountants and other service-sector workers, the office estimates.
The city is trying to “plant a bunch of little seeds” by bringing in small companies that may grow, said Cohen, 44.
A year-end report from Cohen’s office said that tourism, historically a strong source of revenue, is showing signs of weakness.
“The last two months of 2008 starkly illustrate how quickly San Francisco’s economy has changed for the worse,” according to the report.
Housing Squeeze
Some residents oppose Newsom’s strategy. High-end biotech jobs are pushing up housing prices as they boost demand for condominiums and rentals in the area, said Joe Boss, a 25-year resident of the Dogpatch neighborhood.
“Someone making $36,000 needs to live somewhere,” said Boss, 63.
Tony Kelly, 46, a community leader in the nearby Potrero Hill neighborhood, said the tax waiver deprives the city of revenue it could use to upgrade public transit and other services.
The tax break wasn’t an inducement for Celgene Corp.’s Pharmion unit, said Greg Geissman, a spokesman. The Summit, New Jersey-based company was attracted by the supply of scientific talent and has 30 employees at the lab it opened in 2007, he said.
The opportunity to use technology from the University of California helped persuade Fibrogen Inc. to move 250 employees from South San Francisco in November, said Laura Hansen, a spokeswoman. The closely held company is developing drugs to inhibit scarring in organs.
Last month, two scientists from Omniox Inc. moved into 130 square feet (12 square meters) in an incubator facility known as “the garage,” where the university rents space to start-ups founded by faculty members. Omniox is developing proteins to deliver oxygen to tumors and shrink them.
“The next wave of biotech looks like it’s going to be in Mission Bay,” said Stephen Cary, Omniox’s chief executive officer.
To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net.
Last Updated: May 15, 2009 03:00 EDT
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