How healthy—and how significant—is Colorado’s biotech cluster? Just where does it stack up when compared to other clusters in the U.S.? And what will it take to sustain or (better yet) expand it?
The challenges of creating and sustaining a cluster are often on the minds of local biotech leaders. The topic came up again last month at the annual Rocky Mountain Life Science Investor & Partnering Conference. The event is hosted by the Colorado BioScience Association, and in addition to giving companies the chance to meet with investors, it provides a snapshot of where the industry is at the moment.
Highlights of the event included a keynote “fireside chat” about the state of the industry in Colorado with Clovis Oncology CEO Pat Mahaffy, Array BioPharma CEO Ron Squarer, and Boulder Ventures general partner Kyle Lefkoff.
But it isn’t just Colorado where the issue is a hot topic. Xconomy’s national biotech editor, Luke Timmerman, regularly writes about biotech clusters, and on Monday provided a national overview of the major clusters in the Xconomy network.
Luke focused on San Francisco and Boston, but his comments are applicable to anyplace that’s interested in developing a biotech cluster. Luke also identifies two Colorado companies—Array BioPharma (NASDAQ: ARRY) and Clovis Oncology (NASDAQ: CLVS), which are both based in Boulder—as “major league companies” with at least $100 million in cash and short-term investments in the bank—the kind of resources necessary to be independent “anchor tenants” for the region.
You can read Luke’s column for his full thoughts, including his view of what defines a successful cluster. I asked Mahaffy, Squarer, and Lefkoff for their thoughts about the topic during an interview in September.
The local pipeline
First off, no one anywhere thinks that Colorado competes with the major international clusters on the coast. In the same way Silicon Valley overshadows every other geography in the software and IT industry, San Francisco and Boston dominate the biotech world.
But the numbers show Colorado is doing fairly well in its weight class, to use a boxing analogy. According to the Colorado BioScience Association, there are 600 bioscience companies in the state, which include biotechnology, medical device, diagnostic, agricultural-bio, and pharmaceutical companies. Together they employ about 27,000 people.
Investors also know their way to Colorado. Over the past five years, venture capital firms have invested $1.63 billion in Colorado companies, and during that time larger companies have spent $10.17 billion to acquire companies based in Colorado.
Colorado also recently invested heavily in upgrading research facilities. Major projects are underway at the University of Colorado at Boulder and the Fitzsimons Life Science District near the University of Colorado’s Anschutz Medical Campus in Aurora. They are intended to create institutes or facilities that catalyze the growth of companies in the area.
Together, they show that the Colorado biotech industry can thrive and carve out a place for itself, Squarer said.
“I think this area, if people dig in and place some bets, has the potential to not be San Francisco or Boston, but something more akin to a Seattle or San Diego-type hub with a lot of advantages and differentiation,” Squarer said.
Squarer is relatively new to the area, moving to Colorado to become Array’s CEO last year.
He said one of the most impressive things to him is the legacy local researchers and entrepreneurs have of creating successful discovery-focused startups that thrive as independent companies before attracting the attention of industry giants.
“I’d say the track record is almost phenomenal. The number of biotech companies that have formed, been successful, and had an exit, or have generated important assets for bigger companies like Amgen, is excellent,” Squarer said.
Amgen (NASDAQ: AMGN) is a telling example. While Amgen is based in southern California, University of Colorado-Boulder professor Marvin Caruthers was one of Amgen’s founding scientists and did significant research work for the company in the Centennial State.
Amgen also bought Synergen, a Boulder-based biotech, in 1994 for $239 million. The deal set a precedent, as global biotechs have bought a number of important companies that started in Colorado. Notable examples include Pharmion (bought by Celgene in 2007 for $2.9 billion), Myogen (bought by Gilead Sciences for $2.5 billion in 2006), and Nexstar Pharmaceuticals (bought by Gilead Sciences in 1999 for $550 million).
[Clovis might be the next company added to the above list, according to a recent report by Bloomberg News. The company reportedly was looking for suitors this summer. Mahaffy did not comment on the story, saying he had to limit his comments about Clovis to what the company has publicly disclosed.]
IPOs followed by billion-dollar acquisitions seem to be the ceiling for the most successful Colorado biotech startups, but the leaders of those startups have a tendency to stick around the state. An example is Mahaffy, who cofounded and was CEO of Pharmion and was Nexstar’s CEO.
The successful acquisitions have created a talent pool the runs through several companies, Boulder Ventures general partner Kyle Lefkoff said. Boulder Ventures is a Boulder-based venture capital firm that primarily invests in Boulder-area companies IT and life sciences companies, including Array BioPharma.
“We’ve got some anchor companies, and we have some evidence of success. We have a couple, but not a lot, of renowned serial entrepreneurs who can aggregate capital wherever they are,” Lefkoff said.
The talent pool is especially deep for drug discovery, Mahaffy said, with many quality researchers coming out of the University of Colorado. But the state lacks people with expertise in developing drugs and fully realizing their commercial potential, he said.
“There aren’t a large number of medical developers here, and we’ve made the decision to not even try [to do development work in Colorado]. Our clinical team is based in an office we have in San Francisco,” Mahaffy said.
The best developers tend to be concentrated in hubs like San Francisco and Boston, Mahaffy said. Drug developers, he says, are drawn to places where they’ll have good prospects if their companies don’t work out. They tend to be cautious about joining startups.
That’s where having a global heavyweight in town or a startup that makes it big and stays is so important.
“I’ve often thought it would be great if at [the Fitzsimons Life Sciences district], Pfizer or Merck or someone would put in a big anchor [like an R&D center]. It would be really great for the local biotech community. Absent that, there are a lot of companies like Synergen that were great but didn’t become that anchor, in the way that Genentech did (in San Francisco) or Biogen has in Boston. They were good companies that were here that have been acquired away,” Mahaffy said.
Without that key anchor, it’s really hard for an area to get bigger.
“We don’t yet have the critical mass, and I don’t know when we will, or how easy it will be to have it,” Mahaffy said.
The money problem
But there’s one other piece of the puzzle that’s missing.
“You have everything you need here for success, except frankly for the money or the people who want to take the risks,” Squarer said.
But that’s just a fact of life, both for Colorado and startups in the biotech industry.
“We’ve got to be capital importers to Colorado. We always have been, but more so than anytime I can recall in the past,” Lefkoff said. “The capital lives today in the early-stage biotech businesses — what’s left of it, and there’s not very much left of it — what’s left lives in Boston and San Francisco.”
While the amount of VC has diminished, there are encouraging signs. Mahaffy and Squarer pointed to an uptick in the number of successful IPOs by discovery stage companies. [Read Luke’s thoughts on that trend here.]
“We’ve seen impressive valuations for discovery-based companies,” Squarer said. “I think there’s an interest in marrying good science with efficient companies that have access to capital and can do things quickly, whether with partners or on their own.”
But that doesn’t work for everyone. Globeimmune, which is developing cancer and infectious disease treatments, tried that route last year. It filed for an IPO and was supposed to begin trading in September, but ultimately cancelled it the day its shares were supposed to start trading.
The bar there is pretty high, and while companies might move toward IPOs faster than in the past, they still need that initial private investment.
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