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San Diego's Technological Turnabout


IN STATE-OF-THE-ART RESEARCH LABS on Torrey Pines Mesa and down the hill in Sorrento Valley, in low-slung, earth-tone buildings scattered from Kearny Mesa to Carlsbad, a new wave of local high-tech entrepreneurs—software engineers, molecular biologists, computer scientists, electronics designers—are busily inventing little pieces of the future.

It’s a gee-whiz array: gene-manipulated drugs to treat AIDS, diabetes, arthritis, allergies and assorted cancers. Medical tests to flag genetic defects ever quicker. Superconducting magnets. Safe nuclear reactors. Fusion power. Pulsed energy devices.

Satellites. Neural networks. Magnetic resonance machines. Artificial intelligence and smarter robots. Software to create virtual worlds. A stunning new generation of CD-ROMs. Clever instruments that can explore outer space or peer deep inside a beating heart.

A veritable army of researchers is unlocking the genetic blueprints to myriad debilitating diseases. Others probe secrets of the human brain—how addictions operate; why Alzheimer’s disease strikes.

One local outfit is working on a blood substitute. Another is perfecting cultured human skin grafts for use on burn victims. Still another has developed the Cadillac of airport bomb detectors.

At Jerry Caulder’s Sorrento Valley company, Mycogen, scientists have figured out how to insert a biological pesticide into the genes of hybrid seed corn. When a dreaded European corn borer nibbles into a stalk grown from the “transgenic” seed, it’s the bug’s last bite. Today corn, tomorrow soybeans, maybe next year alfalfa or sunflowers.

In little more than a decade, Mycogen Corporation has sprouted into one of the world’s leading agricultural biotechnology concerns, with more than $100 million in revenues and a thousand employees spread between San Diego and production operations in the Farm Belt. In a hungry world—debate over fooling Mother Nature notwithstanding—biopesticides offer farmers an alternative to toxic chemicals and poisoned soil.

“We have to produce more calories in the next 40 years than we produced in the first 10,000 years of farming,” says CEO Caulder, who grew up on his daddy’s Mississippi Delta cotton farm and later earned a doctorate in agronomy. “That’s a daunting task ahead, and the only way you’re going to be able to do it is with technology.”

A little farther down Carroll Canyon Road, Interactive Simulations is just getting off the ground. Mark Surles, a former post-doctorate fellow at the San Diego Supercomputer Center, formed the fledgling software company to commercialize his idea for a three-dimensional molecular modeling program to sell to research labs and schools.

Remember those old tangles of plastic balls and sticks from Chem 101? Surles’ elegant program lets you twist and turn and squeeze a molecule with a mouse click on your Mac. Before, you needed time on a supercomputer to do the same thing.

For two years, Surles knocked on skeptical financiers’ doors, made presentations, applied for small business grants, worried whether he had the right stuff to be an entrepreneur. At last, a few months ago, Surles was handed a check for $1.7 million in hard-won venture capital and began shipping his first orders.

“Nobody thought we could do this,” the boyish-looking computer scientist recalls. “It gets pretty lonely after the newness of it all wears off and you realize you’re way out there all by yourself.”

The two men—the successful veteran, the hopeful newcomer—share traits common to most technology entrepreneurs. They’re risk-takers. They’re persistent. They think they’ve come up with a better mousetrap and are determined to share it with the world—for a profit.

San Diego is increasingly staking a big chunk of its future on people like Jerry Caulder and Mark Surles.

THERE IS A WIND OF CHANGE blowing over the battered San Diego economy, which for the past five years has been staggered by the disappearance of nearly 25,000 well-paying aerospace and defense jobs, along with thousands of other layoffs from the real estate and building slumps and local bank and S&L buyouts. As the effects of a half-decade recession finally bottom out, San Diego seems on the brink of reinventing itself once again, this time as a dynamic center for emerging technologies.

“We are definitely going through a radical restructuring,” observes Marney Cox, senior regional economist for the San Diego Association of Governments. “The only areas where you’d even come close to replicating the magnitude of value those lost defense contractors provided San Diego is with these kinds of high-tech, high-value industries.”

Bruce Ahern annually surveys the biomedical, computer, telecommunication and electronics industries for his La Mesa– based San Diego Technology Directory. When he began his surveys in 1990, defense and aerospace accounted for more than 40 percent of San Diego’s technology-oriented workforce. Today, that figure has been cut in half.

Among Ahern’s latest findings: In 1995, about 100,000 people were directly employed here in some 600 companies spread throughout various high-technology sectors. Some 80,000 work in computers, software, telecommunications, electronics and defense-related companies; nearly 20,000 more are in bioscience-related jobs.

“It’s a totally different makeup than when we started looking at it just a few years ago. Companies are far more focused now,” Ahern explains.

Call it the new economy: smaller, more flexible, niche-oriented companies employing 15 or 50 or maybe 100 workers, developing high-value products for the private sector—innovative drugs, sophisticated software, wireless communications equipment, specialized electronics. Most will probably never grow very big, but there will be a lot of them. That’s the hope, at any rate.

Make no mistake: San Diego still employs thousands of defense workers and will likely continue to, albeit in ever-narrowing niches. Science Applications International Corporation, at the moment the ranking San Diego–based high-tech company, with 3,500 local and nearly 20,000 worldwide employees, takes in almost a billion dollars a year through defense-related contracts. Three of seven programs to build unmanned spy-planes for the Pentagon are still based here. And the U.S. Navy has announced plans to relocate its SPAWAR communications and computer center—and 600 jobs—from the Washington, D.C., area to Point Loma next year.

But consider some recent highlights from the local high-tech frontier:

_ UCSD received federal research grants worth $325 million last year, ranking it sixth among all U.S. universities and first in the University of California system. Six Nobel laureates are on faculty. Its medical school ranks in the top 10 nationally, and UCSD graduate programs in physiology, pharmacology, oceanography and biomedical engineering are ranked among the best in the nation.

_ San Diego has become a national center for digital wireless communications, thanks to the presence of Qualcomm, which invented a leading wireless standard now licensed by most of the big U.S. phone companies. Several of the largest makers of wireless phones—Sony, Uniden, Nokia—are basing major new R&D centers here, and the UCSD School of Engineering last year inaugurated a Center for Wireless Communications.

_ Fueled by scientists from Salk Institute, UCSD and Scripps Research Institute, San Diego has roared to the forefront of basic research in molecular biology, genetics, immunology and neurosciences and in development of new medical products created through genetic engineering. Less than 20 years after the founding of the first San Diego biotech firm, the region ranks fourth among U.S. metropolitan areas in the concentration of biotech companies. One in 10 of all U.S. biotechs is located here, some working on drugs with potential market values of hundreds of millions of dollars.

_ At General Atomics and at the nearby International Thermonuclear Experimental Reactor project, advanced study into controlled fusion—the process that powers the sun and stars—is under way. GA’s $500 million magnetic fusion reactor is one of only a few such facilities worldwide. GA also operates the San Diego Supercomputer Center, in partnership—severely strained lately—with UCSD. Supported by the National Science Foundation, the facility is one of only four U.S. centers for high-performance computing.

_ Nearly 300 software and multimedia companies have quietly taken root around San Diego in the past few years. While most are small, collectively they employ about 20,000. Stacker, the leading data-compression software, was developed here, as was TurboTax, the top tax-prep program. Some of the hottest CD-ROM multimedia entertainment is coming out of San Diego.

AMONG THE LARGER U.S. metropolitan areas, San Diego can—and often does—boast the most college graduates and Ph.D.s per capita, the most home computers, the most miles of laid fiber-optic cable, seven living Nobel laureates (at UCSD and Salk) and no fewer than 70 members of the National Academy of Science.

“I think you must have something in the water down there,” jokes Brook Byers, whose Silicon Valley venture-capital group financed San Diego’s first commercially successful biotech startup, Hybritech, in 1978. Since then, Kleiner Perkins Caufield Byers has invested upwards of $100 million in San Diego technology firms.

“There’s something unique about the culture of San Diego—it’s very entrepreneurial and risk-taking,” Byers says. “When you live there, I think you take it for granted. But it takes personalities, people who have passion, people who get out there and create a fervor.”

Barbara Bry, program director for UCSD Extension’s Connect program, which many credit as a primary catalyst helping drive the technology boom here (see accompanying story), agrees: “I think there’s a culture of entrepreneurship that’s grown up in San Diego. It’s the in thing here to be at a cocktail party and casually mention, ‘I’m starting a new high-tech company.’ Then everyone immediately wants to know what you’re doing.”

In contrast to other established technology centers around the United States—Boston’s Highway 128 corridor, the San Jose–to–San Francisco area, North Carolina’s Research Triangle, greater Washington, D.C.—the bulk of San Diego’s high-tech companies and research centers are surprisingly concentrated.

“We have all this within about a 10-mile radius, which is really rather amazing,” said Ann Randolph, managing director of BIOCOM/San Diego, the five-year-old biomedical trade association. “It’s a cluster, a brain trust that doesn’t exist in many other places.”

Many of the biggest names in high-tech—Eastman-Kodak, Sony, Matsushita, Hewlett-Packard, Hughes, Kyocera, Samsung, Fujitsu, Intuit, Monsanto, Dow—already have operations tucked away around town. Most of the top drug companies—Glaxo, Chugai, Sandoz, Johnson & Johnson, Procter & Gamble—hold multimillion-dollar agreements with local biotechs.

The new-breed technology companies are a local government’s dream: low-impact, high-value, nonpolluting concerns that attract hefty sums of outside money in venture capital and research partnerships. And they pay well: Average salary for a software engineer or biomedical technician starts around $40,000, with senior scientists and researchers knocking down $60,000 to $80,000 or considerably more.

In the high-techs’ wake are hundreds of suppliers and service providers—architects and contractors to build specialized labs and “clean rooms,” business consultants and accountants, PR companies, patent attorneys. John Haller, a partner in the city’s oldest patent law firm, Brown Martin Haller & McClain, notes that membership in the San Diego Intellectual Property Association has multiplied tenfold in the past 20 years. A scientist-lawyer hybrid is starting to appear: Haller’s firm recently hired a patent attorney with a Ph.D. in biochemistry to handle its growing list of biotech clients.

Kurt Chilcott, the City of San Diego’s point man for business development, says there’s no shortage of places around the country—Texas, Denver, North Carolina, Portland—hoping to lure away local technology companies with promises of cheap land and tax breaks. To counter that, Mayor Susan Golding’s administration early on embarked on an aggressive effort to improve the local business environment.

For starters, the city streamlined the building-permit process, reducing the lag time from as much as six months to 30 days or less, and is trying to secure additional sources of water. Both issues are high priorities for the biomedical industry in particular.

“The first thing we had to do was foster a friendlier climate where these kinds of companies would feel they could be successful as they grew,” Chilcott says.

So far, Golding and the city get uniformly high marks from the high-tech industry for the efforts. “It has made a dramatic difference to our members,” says Randolph of BIOCOM/San Diego, formed in 1991 to lobby the city on some of those same issues.

Last fall, a consortium led by the city, the California Trade & Commerce Agency and the San Diego Economic Development Corporation merged a jumble of area high-tech groups and defense-conversion programs into the San Diego Regional Technology Alliance. Using federal and state grants, the 25-member SDRTA is working to come up with a unified economic strategy to help local planners support and grow the area’s technology businesses.

SAN DIEGO’S RISE as a center for emerging technologies hardly happened overnight. After all, it was 40 years ago this summer when a new division of General Dynamics called together many of the world’s top theoretical physicists—Edward Teller, Freeman Dyson, Ted Taylor—for a summer brainstorming session. At a surplus elementary school in Loma Portal, the high-powered group came up with the idea for the first commercial nuclear reactor.

The new company, General Atomic, moved to a futuristic campus on Torrey Pines Mesa and later passed through five corporate incarnations. But it never lost its habit of spinning off new local technology companies. More than 30 can trace their paternity to GA, including the single most spectacular (and secretive), SAIC, founded in 1969 by ex-GA nuclear physicist and technology paterfamilias J. Robert Beyster.

Polio conqueror Dr. Jonas Salk brought his vision for a world-class biosciences research center to La Jolla in 1961, filling the bluff-side think tank with some of the brightest minds in molecular biology (including Nobel laureate Francis Crick, codiscoverer in 1953 of the structure of DNA).

Virtually next door to the Salk Institute, Scripps Clinic & Research Foundation, now called the Scripps Research Institute, set up shop a year later to conduct basic biochemical and genetics research. With a budget of $150 million this year and 2,200 employees, Scripps is firmly ensconced in the world’s top tier of bioscience research centers.

Then there’s UCSD, the high-octane science/technology engine, which enrolled its first class back in 1963. The San Diego branch of the elite University of California was hauled into existence largely through the efforts of La Jolla oceanographer Roger Revelle, with help from Salk, GA founder Frederic De Hoffman and other civic visionaries. UCSD was honed into a research dynamo over the next 30 years by chancellors Bill McElroy and Dick Atkinson. New campus chancellor-designate Robert Dynes, a physicist formerly at Bell Labs, appears likely to continue the emphasis on technology research.

Since the 1960s, the scientific holy trinity launched on the La Jolla mesa has pumped billions of dollars’ worth of research grants into the region and churned out hundreds of new patents and commercial licensing agreements. Three decades later, most of the action in San Diego technology hasn’t strayed far from its roots on the mesa.

The breezy landscape increasingly resembles a permanent hard-hat zone. All along both sides of North Torrey Pines Road, coyotes and jack rabbits are inexorably giving way to shiny new commercial research parks. Glassy cubes contain enterprises with odd-sounding names like Agouron, LIDAK and DepoTech, while freshly prepped building pads speak of more of the same to come.

Across North Torrey Pines Road, the Salk Institute just completed its first major (and controversial) addition in 30 years—two new poured-concrete obelisks to match, more or less, the original Louis Kahn–designed structure. Scripps Institute two months ago dedicated its new $56 million Beckman Center for Chemical Sciences, while UCSD’s restless campus has been a work-in-progress virtually since the day it opened.

Although they compete for many of the same federal and foundation research dollars, members of the local research community say a sense of camaraderie and collaboration has evolved in San Diego.

“It’s a friendly scientific community. I don’t see much rivalry among the institutions,” observes Walter Eckhart, director of Salk’s Center for Cancer Research, a 30-year Salk veteran. “I speculate that’s because we all grew up here together. It’s very different from more competitive places like San Francisco, Boston or New York. Here, we all helped each other from the very beginning.”

Outside the research community, things aren’t always so supportive. William Beers, Scripps Research Institute’s chief operating officer, says that despite the institute’s long-time presence here, it has experienced a bit of an identity crisis at times. “By and large, people don’t seem to know what we do up here. They don’t have any real sense of the science,” he said.

The point was pounded home somewhat forcefully not long ago when a noisy public flap erupted over a planned $300 million partnership between Scripps and Swiss drug behemoth Sandoz Pharmaceuticals. Faced with the unexpected opposition here as well as in Congress over the deal, which gave Sandoz broad rights to develop Scripps’ research discoveries, the chastened institution was forced to reduce the scope of the plan by $100 million.

“We were a little surprised about the lack of awareness of our mission in the community,” Beers recalls. “The whole thing made us realize we were still extremely naive politically.”

Researchers-cum-entrepreneurs regularly tumble out of Salk, Scripps and the university’s labs and into the private sector; some 50 local companies, now employing about 8,000 workers, have come from UCSD faculty, students or research. Driven, talented people like Ivor Royston and Howard Birndorf, who carried out of UCSD the idea for using a new biotechnology technique called monoclonal antibodies to diagnose disease. Using Brook Byers’ venture capital, the trio in 1978 started Hybritech, which soon became San Diego’s first successful biotech.

There was engineering professor Irwin M. Jacobs, a founder of legendary local telecommunications firm Linkabit in 1971, and, 14 years later, its remarkable offspring, Qualcomm. Hybritech and Linkabit in turn spawned several new high-tech companies, including Brooktree, ComStream, PCSI, Gen-Probe, Gensia and Amylin. Birndorf alone has helped start six more biotechs in the decade since Hybritech was sold to Eli Lilly & Company for $418 million.

“Basic research is discovering new things,” explains the Salk Institute’s Eckhart, “and they often turn out to have practical applications.”

IT’S ELBOW TO ELBOW at the Software Industry Council’s Wall of Software at the La Jolla Marriott, the council’s second annual event designed to showcase scores of local products. The line is three deep at the no-host bar. The crowd is hip, the atmosphere relentlessly upbeat.

Over the past 12 months, a new software company has formed somewhere in San Diego County at the rate of about one per week, Software Industry Council President Jim DeLapa is saying. The council, now with about 300 members, was formed a little over a year ago to try to raise software’s profile a bit.

“The local software industry felt for a while that we weren’t being appreciated enough. We had to take it upon ourselves to speak with a cohesive voice,” DeLapa explains.

It apparently worked. Mayor Golding, Economic Development Corporation President Dan Pegg and other assorted state and local honchos take turns at the podium to heap praise on the software folks. “It is a major part of our future. I don’t want anyone in this room to think we aren’t aware of your contributions,” the mayor assures the crowd. “If there’s any industry that’s going to grow, this is it.”

That is, unless it can’t find enough warm bodies to put behind the computer screens. DeLapa says a serious shortage of software engineers threatens to constrain the whole industry.

An acute shortage of highly trained workers generally goes for the rest of the technology business as well. At the Westech high-tech job fair held a couple of months ago, signboards advertising long lists of job openings here and elsewhere told the story. Logistics manager. Senior database developer. Process engineer. Scientist, sequencing/ mutation detection. System architect. Interconnect engineers. Image research engineer.

Qualcomm’s booth offered a 51-page prospectus of available jobs. “No matter how many people we hire, the list never seems to get any smaller,” says a friendly guy behind the counter. Lately, Qualcomm has taken to advertising on city buses.

Explains Westech organizer Paul Burrowes, “San Diego is a hot market right now. Companies have so many openings, candidates can come and take their pick of jobs. Some can’t hire fast enough.” The Sunday classified ads are crammed week after week with high-tech job offers, many of which go begging. Hard-pressed local companies have already begun looking far afield for fresh recruits.

Some fear that the shortage of high-tech workers, coupled with the region’s notorious infrastructure problems, could eventually hobble San Diego’s ambitious push into emerging technologies. For starters, everyone knows the city lacks an international airport—and may never get one—limiting easy access to foreign markets. Ditto a real port.

Uncertainty over additional future water supplies during drought years makes biotechs and semiconductor companies nervous. Squabbling between the feds and the state over where to put a regional site for storage of low-level radioactive wastes, a common by-product of biomedical research, means the matter may not be resolved anytime soon.

“We’ve got the research institutions, the support services and the entrepreneurs here to create a vibrant high-tech industry. What we haven’t done so well,” says SANDAG’s Cox, “is build the infrastructure they’re going to need.”

Well, why worry about that now? What with so much raw brainpower crackling around here—all these scientists and engineers and Nobel laureates, researchers and genius tinkerers, entrepreneurs, whiz kids and thinkers—surely somebody will be able to figure it all out.

Native San Diegan Rick Dower, a former writer for the San Diego Business Journal, is a freelance journalist.
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