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What Seattle Needs (Part 1): “Semi-Successful” Biotech Companies

Opinion

Xconomy Seattle — 

I know what you’re thinking: that’s a pretty strange headline. Why would a city want to attract or build companies that are only “semi-successful?” Wouldn’t it want companies that are flourishing or expanding rapidly? Actually, here in Seattle, we don’t. Semi-successful companies are exactly what we need here as the river of economic change washes through the biopharmaceutical ecosystem. Why “semi-successful” companies? Because very successful companies get bought out as Big Phama retools its business models. These days it’s goodbye, internal R&D; hello acquisitions, collaborations, and contract research organizations.

So what’s my definition of a “semi-successful” biotech company? Essentially, it’s one whose product sales are too small to make it attractive enough to be swallowed by the bigger fish in the sea. The revenues earned by a “semi-successful” company simply won’t boost the earnings of a large pharmaceutical company enough to make the acquisition worthwhile. Big Pharma wants filling, tasty meals, not little snacks. When you have over 100,000 employees and 2013 sales in the $58 billion (Novartis) to $71 billion (Johnson & Johnson) range, it’s hard to find drugs that can significantly expand top line sales. Mergers and acquisitions accomplish this task via the miracle of “synergy,” a euphemism for “laying off large numbers of redundant employees to get the profits where they need to be.” The formula is simple: M&A = product acquisitions + synergy (– employees – empty buildings).

The current poster child of a “semi-successful” biotech company is Seattle Genetics (NASDAQ: SGEN), which has enjoyed meteoric job growth over the past few years. It has developed a terrific technology platform (antibodies that are specially coupled to cellular toxins) that led to its first drug, brentuximab vedotin (Adcetris). This medicine is used in the treatment of Hodgkin lymphoma. Sales have been ramping up nicely since it was approved in 2011 but are not yet near the level that would attract the interest of the big players. Dendreon (NASDAQ: DNDN) would have been counted as a “semi-successful” company a few years ago, but its reversal of fortune (as a result of mismanagement and product competition) has left its future cloudy with a strong chance of insolvency.

Other local biopharma companies with the potential to achieve “semi-successful” status include Omeros (NASDAQ: OMER), Alder Biopharmaceuticals (NASDAQ: ALDR), TapImmune (OTC: TPIV), and Immune Design (NASDAQ: IMDZ). All of these companies are publicly traded. Revenues will need to be large enough that the company can expand locally, continue hiring, and build on early successes. Publicly traded companies that already have Big Pharma partners, such as Acucela (TYO: 4589) and Oncothyreon (NASDAQ: ONTY), are less likely to achieve “semi-successful” status as a result of those relationships. Clinical success will likely lead to their rapid acquisition by those who have already invested in them.

Attracting “semi-successful” companies at any developmental stage is not an easy task. Even if we could identify such companies, what strategies could be used to recruit them here? Investors clearly don’t have a crystal ball that will help them predict which companies will be successful, for if they did they wouldn’t put so much money into startups that ultimately go bust. Is there a way to facilitate the growth of startups into “semi-successful” companies?

Anchor Companies Have Not Proven To Be Saviors Here

I’ve previously suggested, as have many others, that we should try to recruit branches of Big Pharma companies to Seattle. The rationale: as big, stable organizations, they should serve as “anchor” companies that can help absorb employees let go by startups that fail or are acquired. This approach has not worked out as well as hoped, with some of our “anchor” branches sinking under the weight of parent company financial shortcomings. The historical view of Big Pharma companies as stable turned out to be a mirage; they have collectively laid off around 300,000 of their own workers over the past dozen years. Along the way the strong gobbled up the weak, hoping the fiscal forces of “synergy” would work their miraculous effects. Biopharma remains in a state of flux, with its leading companies trying to reinvent their research and development programs as well as their overall business models. Some financial analysts have even suggested that Big Pharma companies should jettison their internal research programs and focus on developing molecules acquired from academia or smaller biotechs. Think small “r,” big “D.”

Amgen (NASDAQ: AMGN) recently announced it is shutting down its two Seattle area sites, which will eliminate a total of 660 jobs here (though an unspecified number of employees will be offered positions at other company locations). More dismal news followed: Novo Nordisk announced that it was ending its inflammation program and cutting 63 jobs in Seattle (leaving behind its 50 person diabetes workforce), and the dissolution of Accelerator graduate Allozyne was also reported. We still have branches of Gilead Sciences (NASDAQ: GILD) and Bristol-Myers Squibb (its ZymoGenetics subsidiary) here, but many of the industry dreadnoughts (e.g. Pfizer, Eli Lilly, Roche, GlaxoSmithKline, AstraZeneca, Novartis, J&J) have not come our way. Where do you think the Amgen/Novo Nordisk/Allozyne employees will go? A website listing current biopharma Washington jobs here showed only 120 positions available as of September 4th. By contrast, the MassBio website offered up 1,602 positions in Massachusetts.

Since different cities and states employ different types of job boards, I also looked at job listings on Monster.com to enable an apples-to-apples comparison. Part of the problem in doing this is that only the most generous interpretation imaginable would allow some of these jobs to be classified as biotech positions (e.g. a raw materials manager at Nordstrom?). With that caveat in mind, Seattle had 337 biotech jobs on the Monster.com website. By comparison, Boston listed … Next Page »

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Stewart Lyman is Owner and Manager of Lyman BioPharma Consulting LLC in Seattle. He provides strategic advice to clients on their research programs, collaboration management issues, as well as preclinical data reviews. Follow @

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  • dnarich
  • I gave Seattle a good 12 years of my life but after getting laid off yet again I had to pack up and move to the Boston area…far more job opportunities and at least the impression of some degree of stability. I went from mid-size biotech (ICOS) to a consulting group, then private consulting, and finally a small biotech which had to dump 35% of its workforce when it lost a contract. I just got tired of the constant downturns in the region despite my love of the area. Just hope my friends at Novo and Amgen can figure out a way to keep the flame alive. Me…I have bills to pay.

  • David Miller

    You can actually lure biotechs to Washington, provided the Legislature is willing to play along. Texas is having a stream of biotechs move to their state via the rules of their CPRIT grants.

    The CPRIT program is something we could easily achieve here in WA if the Legislature gets on board. The grants are reviewed by expert teams.

    CPRIT grants are MATCHING grants, which adds another check & balance. If VCs/Angels aren’t going to invest alongside the state, the biotech doesn’t get the money. CPRIT grants are staged, with specific success milestones that must be achieved to unlock the next tranche of cash. Significantly, the funded company must move its management team and substantially all its operations to Texas to get the money.

    The CPRIT money is meaningful enough, especially with the match, to get companies to move from all over the US and Canada. It also fills a badly-neglected niche, namely cash for very early-stage companies. These are the companies least-served by traditional VC firms.

    I’ve been saying for years we focus to much on R&D biotechs in terms of creating “anchor” companies. Widening one’s view towards manufacturing — device or drug — would allow us to feel better about our entire biotech ecosystem here. Manufacturing plants do get bought all the time, but rarely are closed. They have location-specific assets that are not easily moved. So even if they are acquired, the jobs and companies tend to stay here.

    And these manufacturing companies, especially those who develop the ability to handle all sorts of manufacturing-related development from small biotechs who badly need such expertise, can be home to many of the same biotech/science jobs “at risk” for layoffs when pharma buys our smaller biotech companies. If we can attract a broad variety of thee manufacturing companies, we will develop a place for scientists to move laterally even if we can’t manage to retain large, successful biotech companies in the face of pharma’s desire to acquire. Almost every small biotech I review for our fund needs manufacturing/CMC expertise on an outsourced basis. Building a core “anchor” manufacturing base here in the state will pay many benefits for our entire biotech ecosystem. And we’re on our way already with some nicely growing manufacturing companies already here.

    Finally, don’t underestimate how buyouts and even layoffs contribute to our biotech economy. Our firm has certainly seen an uptick in inquiries from scientists looking for early-stage funding for their great ideas after the recent layoff announcements. We look forward to reviewing more and helping create the next generation of Washington-based biotechs — successfu, “semi”: or otherwise.