Two Simple Ways to Revitalize Seattle Biotech
Seattle’s biotech community used to be among the top-ranked in the nation. But as some 2,500 layoffs have piled up in the local biotech sector since 2002, Seattle has tumbled in the rankings. We need to face up to this fact first, before we can think seriously about how to get back on our feet as one of the world’s top life sciences clusters.
First, here’s the hard reality. A 2004 Brookings Institution study ranked Seattle ninth out of nine regional life sciences clusters when ranked by the number of companies with more than 100 employees. Later studies, however, put our region on an even lower rung: A 2006 Ernst & Young report ranking the state by the total number of public and private biotech companies, put Washington next to last in a field of 16 states and Canadian provinces, just ahead of Connecticut and after Alberta, Canada. (Granted, these reports are apples and oranges, but no matter how you look at it, the picture isn’t looking good.)
Of course, biotech is suffering everywhere, not just in Seattle. Almost half of the 370 publicly traded biotech companies will run out of cash in the next six to 12 months, according to the Biotechnology Industry Organization. Only about 10 percent of the companies in the industry are cash-flow positive, BIO says.
Big Pharma, as has been widely reported, is also in big trouble. Wyeth, Bristol-Myers Squibb, Pfizer, AstraZeneca, Eli Lilly, Merck, GlaxoSmithKline and others have recently announced large cutbacks in their ongoing research programs. Upcoming patent expirations on their blockbuster drugs, coupled with the fact that they must continue their growth rates to keep Wall Street happy, has put them under tremendous financial pressure. The good news is this: their marketing-driven mantra of the past two decades is slowly giving way to an enlarged scientific and medical focus.
They really have no choice. Much of the low hanging fruit has been picked off of the Obvious Biological Targets tree, leaving them to search out new and unfamiliar vistas to expand their operations. In the case of some drugs that are currently used to treat diseases, genetic factors have been identified that regulate which individuals will respond favorably, and which will not respond at all. Similarly, the ability to look for genetic changes at the molecular level has led to a deeper understanding of the mechanisms that cause diseases. What used to be thought of as a single disease entity is now understood to be an amalgam of distinct disease processes. Each of these disease subgroups may require unique therapeutic interventions. This fragmented targeting of diseases both decreases the size of treatable patient populations while making it more likely the treatment will be effective.
So what can Seattle contribute to this changing industry, to once again become a top-tier biotech city? I think the major factor working against us is a lack of “critical mass” of scientists and experienced managers at all levels. When biotech employees get laid off in Seattle, there is a significant shortage of open positions (which are often very highly specialized) at other local companies. As a result, these individuals must either leave town or change their career focus. A recent scan of the WABio website showed a total of only 50 life sciences job openings in the region. These 50 jobs are not just for biotech companies, but include academic institutions, medical device companies, and contract organizations. Given that there are approximately 71 drug development biotech companies in the Pacific Northwest, that is a minimal amount of hiring going on. This lack of critical mass makes it more difficult to initially attract employees to our region, because people in this industry know that they could lose their job any time, and then find it extremely difficult to find another comparable job in the local community. This is especially true as one gains know-how and rises up the career ladder, since there are fewer positions available for those in top-level jobs. Thus, the most experienced people are the ones who are least likely to be retained locally.
I would like to put forth two proposals, which are not mutually exclusive, that if implemented would help to create a more stable base of biotech jobs here in the Puget Sound region.
Proposal 1 – Use tax breaks or some other forms of financial incentive to convince Big Pharma or Big Biotech that they want to have a beachhead here in Seattle. This would certainly help to create a semi-permanent “base” of stable jobs. Amgen thought it was a good investment to keep a research group here after they acquired Seattle-based Immunex. The Danish drugmaker Novo Nordisk has recently announced that they are setting up a research group here in Seattle (eventually providing 80 jobs) to take advantage of our local research expertise. Massachusetts just had a meeting in the San Francisco Bay Area whose goal was to either get companies to relocate to their state, or at least consider adding satellite research groups there. Let’s see if we can get other big companies to come on board as well. Because they realize they need to revitalize their R&D operations, they know it’s in their interest to be nearby talented academic researchers like the ones we have in Seattle.
Having said that, there are no guarantees, however, that these types of “branch offices” will stay around. Bristol-Myers used to have a branch of their Pharmaceutical Research Institute here in Seattle, but it was shut down in 1997. Also, Merck recently announced that it was closing down its Rosetta Inpharmatics group and moving the operations to Boston. These last examples illustrate the problem with being a “branch office” of a large institution and not the world headquarters. Seattle needs to do more than merely serve as a branch office for Big Pharma. So this is only part of the solution, leading me to a second proposal.
Proposal 2 – Fund a private, nonprofit pharmaceutical organization that, in contrast to the Fred Hutchinson Cancer Research Center or University of Washington, works on drug development, not basic research, as the primary goal. Software entrepreneur Phillip “Terry” Ragon and his wife just gave $100 million to the Massachusetts General Hospital to form a research institute focused on developing vaccines for AIDS and other infectious diseases. Wouldn’t it be wonderful if one of our own homegrown billionaires decided to commit the same sum of money to a new, privately held drug company? Let’s just take a minute to envision the benefits of an independent drug company. Its mission could be led by science and unmet medical needs instead of marketing plans. It could resist the financial pressures that drive the development of “me-too” drugs and also force a focus on a search for blockbusters at the expense of other diseases that could be treated but might not bring in huge revenues.
Being privately held and nonprofit, this company couldn’t be acquired in a hostile takeover by dangling large wads of cash in front of shareholders, since there wouldn’t be any. Effective treatments could be sold for much less than other drugmakers would have to charge, and a large share of the revenues would be plowed back into research and development instead of advertising and marketing. Finally, such a private, nonprofit company could develop drugs on a longer timeline, if needed, than currently favored at startups. This lack of pressure to get a drug into the clinic ASAP would enhance the probability the drug might actually be successful in clinical trials. No stock options, just good jobs for people who want to dedicate themselves to a mission, not the next million.
This new company could be set up along the lines of the nonprofit Institute for One World Health in San Francisco, which mostly focuses on diseases of the developing world. The institute’s mission essentially requires it to develop inexpensive small molecule drugs, preventing it from accessing the more expensive-to-develop protein drugs.These products also have much more stringent storage, shipping, and administration requirements. But a well-funded, nonprofit biotech company in Seattle could make some of these types of drugs for a large number of orphan diseases (defined by the NIH as those that effect less than 200,000 people in the U.S). This could be a powerful idea for tackling a whole host of diseases that can’t be treated well with conventional small-molecule drugs.
Where might this company find drug candidates to work on?
—License intellectual property from a university or other academic research center.
—Buy a drug candidate from one of those promising but underfunded biotech companies that are likely to go out of business this year.
—Buy a drug development program that Big Pharma has chosen to abandon because they have either decided to narrow their disease focus, or because the market is too small to generate sufficient revenue to feed their huge organizations. For example, Pfizer has announced recently that it plans to sell off some 100 drugs from their development pipeline. While a drug that brings in $100million in annual sales can’t be begin to make up for the upcoming revenue decline when atorvastatin (Lipitor) loses its patent in 2011, these relative “niche” drugs may not mean much to Pfizer, but they could pay for a great deal of research and development at a much smaller company.
Seattle has established itself as a powerhouse in basic biomedical research, with huge amounts of grants flowing to the UW, Fred Hutchinson, Seattle Children’s, PATH, Seattle Biomedical Research Institute, Pacific Northwest Diabetes Research Foundation, Benaroya Research Institute, and others. However, success on the commercial side has been much more limited, and at times transient. Financial returns from investments in the state’s Life Sciences Discovery Fund are still years away. Hopefully the proposals above will spark a dialogue that will ultimately help to rejuvenate our local biotech community.