Five Questions for the Future of Biotech in San Diego, Part 2

1/21/09Follow @xconomy

Yesterday, we ran a couple of in-depth interviews about the future of biotech with two San Diego CEOs—Optimer Pharmaceuticals CEO Michael Chang and Phenomix CEO Laura Shawver. I asked them the same five questions about the outlook of the industry that I asked leaders in Boston, so you can compare the bi-coastal views of the year ahead. In a nutshell, I’d say people are being realistic about tough times ahead, but certainly aren’t ready to give up and cry in their beer.

Today’s interviews are with a large San Diego-area lab supplier (Life Technologies) and from a prominent venture investor in San Diego companies (Venrock Associates). Here are the highlights:

Mark Stevenson, president, Carlsbad, CA-based Life Technologies

Xconomy: What was the single most valuable lesson you learned from the last big biotech bust (the genomics-driven crash of 2001 and 2002), and how will having those battle wounds help you carry on today?

Mark Stevenson: What happens is a natural hyping of the potential. What we saw was a hype over the sequencing of the human genome, and what would come of it. The reality that you learn from those lessons is that it’s a matter of timing. The promise of the sequence and personalized medicine is absolutely there, but with the complexity of biology, we often make mistaken estimates of the time to get there. That was the biggest lesson, to be a bit more sensitive to the timing it takes to realize the promise.

The lesson for us is really not to lose the promise of biotech, but to realize the timing to achieve it and execute means we have to be careful with our resources to realize that promise.

X: Every year, bankers like to say acquisitions and partnerships between biotech and pharma companies are going to pick up because pharma needs innovative new drugs, and biotechs need cash to develop them. Do you really see this trend truly accelerating this year, and if so, why?

MS: We do. Our business is a supplier to the academic and pharmaceutical industry. What we’ve seen in our own combination of the Invitrogen and Applied Biosystems is a consolidation that’s happening in the industry. We believe there will continue to be startup and small companies getting formed, but in the mid-space there will continue to be a consolidation of companies, like you’ve seen with Invitrogen and Applied Biosystems.

X: What kind of companies, technologies, and people will be resilient enough to survive this downturn?

MS: A couple things come to mind from us. One is a very agile nature and ability to adapt to changes, because it is an uncertain future. We want to be very nimble in how we go forward. The second is an ability to continue to invest in innovation. As we look at science that is transformative for us, we want to continue to invest in that area. Third, is to really focus on strategic priorities. So we spent a lot of time in the new company to say during this time, we are going to be very clear what our priorities are. We set up within the company a regular mechanism to review the priorities. We have a 100-day plan that we review very rigorously to make sure we’re focused on execution.

X: Who would make a good FDA commissioner, and why?

That’s probably one we’d skip over.

X: What’s the most surprising impact of the past year’s economic turmoil on your plans for this year?

MS: It’s well-publicized that it may happen, but we’re hopeful that this might be an opportunity to re-structure how we think about investment at the NIH. In real terms, the NIH is stagnant. We are hopeful the new administration will make two significant changes. One is to put more dollars into NIH for biomedical research. The second is to change the restrictions on stem cells. Both of those things will stimulate research, and stimulate really the promise of new technology that will transform how we think about health care and how medicine is done. It will be a lot more useful than just building bridges.

Bryan Roberts, partner, Venrock Associates

Xconomy: What was the single most valuable lesson you learned from the last big biotech bust (the genomics-driven crash of 2001 and 2002), and how will having those battle wounds help you carry on today?

Bryan Roberts: For me, it is almost a corollary about how you shouldn’t believe your own BS. In good times, don’t assume any of the underlying fundamentals have changed. This is a hard business, creating new innovative health care companies and making money investing in them. It’s hard. So you need to relentlessly focus in how you innovate in science and business in order to be successful at it. Don’t get lulled into thinking it’s easy because for some time period the cycle works in your favor. Because then you’re unprepared when the cycle works against you.

I think a variety of our companies are quite well prepared. In this time period, the good companies will continue to do well and be successful. When you look at how many companies ever get to have a real product, it’s a small number. This is an industry where you pick company winners, you’re not betting on a basket of an industry sector. The good companies will continue to do well. There will be a substantively harsher winnowing of the mediocre middle class of companies. There are a ton of them. They have historically remained around, raising more money, in-licensing more things. I think you’re going to see more of those going away.

You see it on the broken public company side. You used to be able to do a reverse merger into a public shell for the cash and public trading currency. Now you’ve got shareholders saying “No, no, no, I don’t want that. Give me my money back please.” I think you’ll see more of that.

X: Every year, bankers like to say acquisitions and partnerships between biotech and pharma companies are going to pick up because pharma needs innovative new drugs, and biotechs need cash to develop them. Do you really see this trend truly accelerating this year, and if so, why?

BR: I think that was the never-fulfilled promise until about two years ago. In the last several years, there has been a substantive uptick in M&A. It’s a couple things. One, it became en vogue for pharma to look for things outside their own walls. Two, as management teams at pharma have turned over, new guys have come in and said “We gotta go buy some stuff.” They don’t have legacy issues to deal with. So I think it will be a steady pace this year from last. Yes, it will continue.

Everything is for sale now. We live in a capital-intensive industry, and when capital starts to go away, people start trying to figure out how can I retain, create, or salvage value. So I think it will be steady.

X: What kind of companies, technologies, and people will be resilient enough to survive this downturn?

BR: For already existing companies, those management teams that have all the requisite characteristics you look for—they’re smart, have high integrity and all that stuff—but those who take the long view, put the company first, and are really seeking to improve patient care and outcomes, and have a product candidate that really does materially improve the standard of care. That doesn’t happen all that often. The seventh drug in a class, the fourth knock-off of twice-daily dosing, those will be much more difficult. A lot of this is being driven by the FDA and reimbursement. But I think real innovation and proof of differentiation from current therapy will be crucial.

For people who are starting companies, you don’t have part-time entrepreneurs who are trying to start companies today. What you have are the die-hard people who are really in it for the long haul. They really want to start something and change the world. There will be some great companies started now.

X: Who would make a good FDA commissioner, and why?

BR: Someone who’s in the job more than nine months. (Pause). One of the more interesting ones I’ve heard is (Jane) Henney. Someone who’s experienced, but not compromised by their history. And who’s not seen either as a friend or a foe of industry. It’s all fine to say we should hire Nader’s guy for health policy, or (Steve) Nissen, take your pick. You want someone who’s intellectually rigorous about the job, but not who has an agenda one way or another. Someone who can command respect from the Congress and the public. The FDA has really had a tough run. Let’s be clear, every side of the equation has an incentive to have a well-functioning FDA.

X: What’s the most surprising impact of the past year’s economic turmoil on your plans for this year?

BR: I have been pleasantly surprised with how positively proactive people have been about the changing environment, doing more with less, prioritizing what they’re doing. It’s been really heartening for me. That’s been a surprise.

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