Seattle Doesn’t Need a Biotech Anchor Tenant. It Needs to Be a Place Where Startups Thrive

9/14/10

Over the past week or so, I have been asked by a number of people, both privately and in the media, what I think about the acquisition of Seattle-based ZymoGenetics (NASDAQ: ZGEN) by Bristol-Myers Squibb. As is usually true in Seattle, the prevailing reaction following the announcement was some moaning and gnashing of teeth, with “woe is me” pessimism about the inability of Seattle to build an independent “anchor tenant” biotechnology company. I completely disagree with that sentiment.

I have lived in Seattle and worked in biotech for 15-plus years, and I hear this tired refrain repeated each time Big Pharma or Big Biotech comes to town to acquire a company. In the beginning, I bought into the pessimistic view of what is required to sustain the biotech industry in Seattle. However, after watching the aftermath of a number of these transactions, I no longer buy that these acquisitions are harbingers of doom, or even that they are bad things at all. In fact, I have become convinced that events of this sort drive new rounds of innovation and company-formation, and are tremendous positive indicators of the vibrancy and health of the biotech industry in Seattle.

Generally (and grossly oversimplified), there seem to be two types of Big Pharma acquisitions of smaller biotech companies: (1) the strategic operational acquisition; and (2) the asset acquisition. In the strategic operational acquisition, the acquirer is looking to strategically add capabilities and expertise. In the asset acquisition, the acquirer has little interest in the capabilities and expertise and instead is acquiring key product(s). Seattle biotech has experienced a number of each, and I would argue that both are potentially significant “wins” for the local industry.

In a strategic operational acquisition, the acquirer will normally “rationalize” the local operation, trimming redundant functions (or functions in which they are not interested), but retaining key capabilities, teams, and individuals. For all of the disdain heaped upon the Big Company acquirer for subsequently beating innovative and entrepreneurial spirit out of the acquired target company, the injection of capital, stability, resources, etc. into those operations generally enables sustainable and productive operations to remain in Seattle. The acquisitions also generally provide liquidity to the investors in the acquired company, enabling a recycling of investor capital within the Seattle biotech industry and creating wealth for investors and entrepreneurs alike. I would suggest that Corus Pharma, Rosetta Inpharmatics, and Immunex are examples of this type of acquisition.

Yes, I know, things change over time as the realities of the industry catch up with the large acquirers, and occasionally large operations such as Rosetta are later shuttered. For the consequences of this, see the description of asset acquisitions below. In an asset acquisition, the Big Pharma acquirer shuts down the target company, releasing (or offering relocation to) virtually all employees. While this sort of acquisition does not leave in place the sustainable and productive operation as in a strategic operational acquisition, it does provide investor liquidity and the positive effects on innovation that this recyclable capital can (and does, in Seattle) produce. The Lilly acquisition of ICOS is a good example of an asset acquisition. The effect on employees is more abrupt and dramatic, and leads to some talented scientists and entrepreneurs leaving the Seattle area.

However, in both types of acquisition, whether the displacement of talented, innovative entrepreneurs and highly productive and competent individuals is abrupt and dramatic, or more gradual over time, the result historically in Seattle is the same. Those talented folks gather together around new ideas, and they pursue and secure investment in those ideas, and they build great new companies. And most assuredly that will be the result with ZymoGenetics.

I am not unsympathetic to the negative impact (usually short lived) on individuals who lose their employment in these transactions. Being out of work, particularly in this economy, is frightening. However, a certain amount of that comes with the territory. Working in small, innovative, exciting companies that grow to be successfully acquired (or unsuccessfully shut down) is risky. Anyone who cannot live with that level of risk should look for work in a different type of organization/industry. But for those with the stomach for the risk, the emotional, intellectual, and economic rewards can be great. It is those people who can survive and thrive in a cyclical industry of growth, acquisition, reinvention, growth, etc. The fact that Seattle as a biotech community is capable of staying in this cycle and repetitively developing and selling technologies and products is proof that there exists the critical mass for a sustainable and flourishing industry.

So, applaud the successes and marvel at the resilience and depth of biotech in Seattle.

[Editor's Note: This post can also be found over at the OVP Blog.]

Carl Weissman serves as Chairman and CEO of Accelerator, a joint investment vehicle backed by a syndicate of venture capital firms, and as a Managing Director at OVP Venture Partners. Follow @

By posting a comment, you agree to our terms and conditions.

  • T.J. Petrizzo

    Amen! Strive to be THE best in what YOU do best.

  • Dean Taylor

    Carl provides a great perspective on this concern, and I totally concur with all his points. Handwringing doesn’t help. Getting on with the business of growing new companies is where its at.

  • Ted

    “I am not unsympathetic to the negative impact (usually short lived) on individuals who lose their employment in these transactions. Being out of work, particularly in this economy, is frightening.”

    Sorry, Carl, but that sounds a bit glib. I’ve been in pharma work since ’93, and with Seattle-area biotechs since ’97 and I’ve been through three layoffs, five mergers and and two company failings.

    I had a co-worker coming to me in tears asking me whether she should get a divorce and go back to a job she had out east, or stay with an intransigent husband and child and accept unemployment. I watched a co-worker selling off his furniture to help cover Cobra payments to carry them through the birth of their child. Out of roughly 100 scientists that I’ve worked with (i.e. in my “group” or department) since ’97 only a little over a third are still in the Seattle area. I’ve spent almost three out of the last thirteen years in this area between paychecks. I know skilled scientists that hung it up to become tour guides, salesman, stay-at-home parents and retail clerks.

    Large pharma takeovers of biotech frequently relegate innovative research to the trash bin. “Asset acquisition” is in the eye of the accumulator. The kinds of projects that biotechs work on, often laying the groundwork for significant improvement in health care, are often at odds with the programs that large pharma is comfortable with. Otherwise, large pharma would be working on them. For every ‘diamond in the rough’ that can be retrieved (see: Calistoga) for 3rd party development, dozens of other projects are buried. The cells die, the assays are not published, the compounds are burned, the groups are disbanded. Yay science.

    Clearly, I have the stomach for this. But, I find the rewards are limited. I don’t want my children to become industrial scientists. Industry doesn’t deserve them.

    -t

  • Seattle

    It’s nice to see some optimism, and I agree it’s not a Seattle thing that the companies are bought.
    However, one has to wonder about what happened to Zymogenetics. This company was a world class R&D group, discovered or cloned countless new agents (human insulin, thrombopoeitin, et), and contributed hugely to the pipeline of Novo Nordisk. It seemed to function very well as a stand alone research group here in Seattle, almost like a university. Why was it necessary to take the company out on it’s own, to hire so many people for clinical development and marketing, fire the research staff, and then sell the company? Fortunately Novo has opened sort of a re-creation of Zymo in the building next door to soak up some of the scientists laid off.
    It’s true that some of the talented people at Zymo will probably do just fine and may band together to form new companies etc. However, many of the executives there were no longer from Seattle and will probably go back to SF or wherever, and the “little people” who worked long hours and weekends because they believed in the company and trusted the management are the ones who get hurt.

  • http://www.prosperitypartnership.org Eric Schinfeld

    I made this same point yesterday: http://prosperityblog.wordpress.com/2010/09/15/age-vs-size-for-job-creation/

    It turns out that start-ups are not only good, but actually the biggest drivers of job creation, so there might even be a net positive impact in the long run on job creation…

  • Bon Voyage Seattle

    Wow, Carl. I see some of your points here, but while you may be “not unsympathetic”, it doesn’t quite sound like you have been on the side of one of these acquisitions that turned one’s life inside out. This may play into your “tired refrain” which seems to exhaust you from the sidelines.
    Little too much Seattle propaganda, Carl, and not enough inquisition into why the Zymo board got suckered into folding their cards before the EMERGE Phase II data is available, why everyone thinks this is a crap deal (including upper management), who had the hand of God to convince Novo to cut loose, and a followup on investor(s) filing suit. I’m sure your readers might be a little more interested in some of these more investigative aspects of an outdated biotech model rather than your “not unsympathetic” rhetoric. Wanna give another stab at this?

  • Seattle90210

    How unsurprising to read CEO Carl’s “not unsympathetic” view, given that he’s obviously completely out of touch (and sorry, but obviously unsympathetic) with what it’s like to be a working scientist in the biotech industry, my profession for 20+ years. What has happened at ZymoGenetics is the result, pure and simple, of some of the most incompetent senior management in biotech. It was a case of one bad decision after another over the last 4-5 years; a poor strategy poorly executed by executives who were clearly not the management cream of the crop. And now, the very individuals who destroyed the company will cash in on the sale of what’s left of it. It’s a sad end to a once great R&D facility, filled with talented, dedicated researchers, and sadly typical of current business practices, i.e., short-sighted and all about the quick buck for those at the top of the organization. No accountability for Zymo executive staff or the Zymo Board. Shame on them.