Alan Frazier has been on record for a long time saying that the traditional biotech venture model is broken, and in severe need of updating. He’s been working on a new strategy for the past seven years or so, but the approach is facing its biggest test ever as Frazier prepares to raise his first fund in the wake of the Lehman/Fannie/Freddie/AIG financial calamity of 2008.

Frazier is the founder and managing partner of Frazier Healthcare Ventures, a 20-year-old Seattle and Menlo Park, CA-based venture firm that has $1.8 billion under management. The firm’s last fund, Frazier Healthcare VI, assembled $600 million in November 2007 to put to work in biotech, medical device, and healthcare growth equity opportunties. Frazier hasn’t formally initiated a fundraising process with pensions, endowments and other institutions, but on average he has raised new venture funds roughly every three years. “It’s time for us to raise a new fund,” he says.

The big story this year in biotech venture capital is the sheer number of funds—most estimates are between one-fourth and one-half—that are thought to be slowly winding down as they struggle to show the returns that are needed to keep raising new funds. Frazier, during an interview at the JP Morgan Healthcare Conference last week, said he expects many peer firms—but not his—to “go into hibernation.” He’s forecasting his fund will be one of the survivors because it decided back in 2005 that it no longer made sense to build biotech companies that intend to go public, and that they needed to be tailor-made to be acquired by Big Pharma and Big Biotech companies.

“For a long time, we in the venture business created the wrong companies for [big companies] to buy,” Frazier says. “We’d build something with 150 employees and four projects, when what they want are 25 people and one project.” The payoff, he says, “has been pretty dramatic. Obviously, it takes a while for that kind of strategy to evolve.”

Like any firm that’s been around for a while, Frazier has its share of wins and losses (and it obviously prefers to talk about the wins). Seattle-based Calistoga Pharmaceuticals represented a 3.74x return on Frazier’s investment when it was acquired by Gilead Sciences last year for $375 million up front, although the return could rise to 6x Frazier’s investment if certain milestones are met. Other portfolio companies like Oakland, CA-based Cerexa, San Diego-based Calixa Therapeutics, Carmel, IN-based Marcadia Biotech, and Cambridge, MA-based Alnara Pharmaceuticals all ended up getting acquired in the last two years at multiples between 3.39x times original investment on the low end (Alnara) through 10.67x times investment on the high end (Marcadia), according to data published in a Frazier newsletter. There was even one rare IPO in the portfolio, from Boulder, CO-based Clovis Oncology (NASDAQ: CLVS).

Of course, there were less-happy events for Frazier in the past year, too. Seattle-based Calypso Medical Technologies—which raised more than $175 million in venture capital since its founding in 1999—was sold for $10 million last year, plus undisclosed milestones. And just a few months after … Next Page »

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Doug Williams, one of the few nationally prominent biotechnology executives in Seattle, has officially left his job as ZymoGenetics CEO now that the company’s $885 million takeover by Bristol-Myers Squibb has been completed, Xconomy has learned.

Both Williams and former ZymoGenetics president Stephen Zaruby have left the company after it was acquired last month by Bristol-Myers Squibb, according to Bristol spokeswoman Jennifer Fron Mauer. She didn’t say who else on the senior management team has left, or who is now in charge of Bristol’s new operation in Seattle. The New York-based pharma giant hasn’t yet decided what to do with the remaining Zymo employees, or its local facilities, she says.

Now that Williams, 52, is officially a free agent again, he will have his pick of various plum jobs. He has deep roots in Seattle going back to the 1980s, and has built up a big Rolodex and gained lots of executive experience at Immunex, Amgen, Seattle Genetics, and ZymoGenetics. Williams is obviously still young enough to run another mid-cap biotech company, start a new venture, or do something else. As his longtime friend and legal advisor Stephen Graham of Fenwick & West once said, Williams has a reputation as a “calm, thoughtful, insightful and unflappable” business leader.

“Doug is one of the key players in the Seattle market that has CEO experience and a solid scientific background,” says Bob Nelsen, managing director with Arch Venture Partners in Seattle. “He can do anything he wants, from CEO, startup, to VC. Hopefully he stays here! I would back him any day.”

When I spoke with Williams yesterday by phone, he confirmed he’s looking at a number of different job opportunities. “I’m not ready to hang up the cleats yet,” he says. “I sort of feel that after 20-plus years in the business, I’m starting to figure out some of the do’s and don’ts. I’m definitely not ready to stop. I enjoy working in this business.” [For the full interview with Williams, check Xconomy tomorrow.]

As with anybody who’s been around biotech for a long time, Williams has a track record with its share of ups and downs. He was the chief technology officer at Immunex when that company had its breakthrough success with etanercept (Enbrel), and he was there when the company failed … Next Page »

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OK, I’m not usually a big fan of end-of-the-year lists. But given that Xconomy Seattle has been up and running for almost exactly six months (since June 16), Luke and I thought it would be fun and informative to share our site’s top 10 most-read stories so far—and why we think they were important or special.

The list is an interesting mix of stories that captures the spirit of what we’re doing here at Xconomy, and it also gives a pretty balanced retrospective on the events of the past half-year. The stories represent our commitment to cover all sorts of innovation in the Northwest, spanning technology, life sciences, breaking news (both good and bad), and in-depth features and analysis.

So, without further ado, here are the 10 most-read Xconomy Seattle stories of the past half-year:

10. Microsoft’s BizSpark Reaches Out to Startups

This piece covered how Microsoft relates to the startup community, through a review of the first 30 days of its BizSpark program.

9. It Came From the Hutch

The untold story of how Tysabri, the most effective multiple sclerosis drug on the market, was invented in a lab right here in Seattle.

8. Immune Design Raises $18M to Build Vaccine Company

Readers were excited to hear about one of the bigger venture financing deals of the year in Seattle, led by a team of superstars in immunology.

7. Heller Ehrman Dissolves

This was bad news based on a layoff filing from Washington State’s Employment Security Department. A global law firm with a large Seattle office, known for its work in the tech and life sciences community, has left the scene.

6. Amgen Scientist Vs. Bone Cancer

The story of a 13-year quest: how the persistence of a Seattle scientist at Amgen may pay off in the coming year, through a new drug for bone loss called denosumab.

5. Nathan Myhrvold Holds Court

An exclusive, in-depth interview with Nathan Myhrvold of Intellectual Ventures. The former Microsoft chief technology officer and founder of Microsoft Research covered everything from ping-pong with … Next Page »

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Maybe everybody’s rushing to scratch things off the to-do list before the holidays, but this was one of the busiest weeks of the year we’ve seen in Seattle biotech news. Here are the highlights.

—Seattle Genetics had a big week. The Bothell, WA-based biotech company (NASDAQ: SGEN) said follow-up data in a clinical trial of its “empowered antibody” for Hodgkin’s disease and related lymphomas showed it’s getting better at causing complete remissions, and the effect appears to be long-lasting. Another drug passed an interim safety analysis.

—Alan Frazier, who oversees $1.8 billion for Frazier Healthcare Ventures, sat down with me for an exclusive interview. He had some interesting advice for how companies can adapt to one of the worst busts in the industry’s 30-year history.

—An effective malaria vaccine has eluded scientists for a century, so I stopped by to interview Stefan Kappe of Seattle Biomedical Research Institute to find out why he’s so excited about a new approach. I made sure to track down Kappe in advance of our Xconomy Forum tonight, which focuses on next-generation vaccines in development.

—Alder Biopharmaceuticals, a Bothell, WA-based developer of antibody drugs, received some good fortune in time for the holidays. Its leading competitor, Switzerland-based Roche, was hit with a delay from the FDA that is expected to slow down its plans to commercialize a rheumatoid arthritis drug by at least a year. This could give little Alder a chance to catch up.

—We broke the unfortunate news here last Friday that Calypso Medical Technologies laid off 36 workers, or about one-fifth of its staff, to conserve cash in the downturn. To see an updated list of layoffs at Seattle life sciences companies, click here.

—Some life sciences companies and organizations are still hiring in Seattle, so I set out to track down this information, despite the drumbeat of layoff news. If anybody out there knows of big names I’m missing, please send me a note at editors@xconomy.com.

—ZymoGenetics (NASDAQ: ZGEN) said its sole marketed product, recombinant thrombin for surgical bleeding, didn’t cause any immune reactions when given to patients who were at risk of getting that complication. The company will use this data to try to persuade doctors it has a safer alternative than the standard drug made from cow blood, by Bristol, TN-based King Pharmaceuticals.

—The Fred Hutchinson Cancer Research Center raised $2.2 million in donations for its scientific programs Saturday night, at its annual Hutch Holiday Gala. The center plans to funnel … Next Page »

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It was a very slow week for deals in the Northwest, with layoffs and other bad news dominating the headlines. But there were still a few deals in biotech, software, and e-commerce.

—The Fred Hutchinson Cancer Research Center in Seattle raised more than $2.2 million in donations for its research programs at its annual holiday gala, as Luke Timmerman reported. More than half the money, $1.2 million, will be used to expand immunotherapy clinical trials in the late stages of disease.

—Seattle-based nonprofit PATH is investing $3 million in a vaccine candidate against pandemic flu, as Luke reported. The vaccine, which is intended to mimic “bird flu,” is being developed by Gaithersburg, MD-based Lentigen.

—Microsoft (NASDAQ: MSFT) and Hopkinton, MA-based storage giant EMC (NYSE: [[ticker: EMC]]) expanded their partnership to improve data security for customers across networks and data centers, as our Boston colleague Ryan McBride reported. The deal, whose financial terms were not disclosed, will put technology from EMC’s security division, RSA, into certain Microsoft products, such as Windows Server 2008.

—Seattle-based Amazon completed its acquisition of Victoria, BC-based AbeBooks, an online marketplace for used and rare books. The deal was originally announced August 1. With this purchase, Amazon (NASDAQ: AMZN) also owns 40 percent of LibraryThing, a literary social site based in Cambridge, MA, that competes with Seattle-based Shelfari (another recent Amazon acquisition).

—Not a deal, but words of wisdom from two of Seattle’s most prominent deal-makers. Luke did an exclusive interview with Alan Frazier, founder of Seattle-based Frazier Healthcare Ventures. Frazier discussed why the traditional venture model is broken, and what companies need to do to adapt. And I sat in on a great talk by Nick Hanauer, founding partner of Seattle-based Second Avenue Partners and an early investor in Amazon, as he spoke about how to spot breakthrough ideas and companies.

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Alan Frazier controls one of the world’s biggest life sciences venture capital funds, so it would only be natural that he’d like to hide under a rock these days. But he was still willing to sit down with me at his 32nd floor office in downtown Seattle this week for a wide-ranging talk about the shellacking his industry is taking in the financial markets, and how biotech companies can adapt.

Frazier, for those who don’t know, is the founder and managing partner of Seattle-based Frazier Healthcare Ventures. The company, founded in 1991, has raised seven venture funds with a total of $1.8 billion for emerging biotech, medical devices, and healthcare services companies. Before that, he was one of the early executives at Seattle-based Immunex during its fast-growing 1980s heyday.

To hear Frazier talk now, the days when VCs could gamble on a promising technology and a driven management team, with the idea of creating the next Amgen, Genentech, or Immunex, are history. “The traditional venture capital model is broken,” he says.

Here’s what he had to say, edited for length and clarity. (Despite some grim observations, you won’t need to take a selective serotonin reuptake inhibitor like Prozac after reading this.)

Xconomy: You’ve been through a lot of downturns in your career before in biotech, like 1994 and 2001-2002 being the most recent. What’s different about this one?

Alan Frazier: The downturn is not just over the last two months. It really began two and a half years ago, when IPOs started to represent only a liquidity event, not a profit event. I think it’s challenging the traditional biopharma venture model. It’s more significant than we’ve ever seen in the past. That doesn’t mean biopharma venture is dead, it’s just different.

X: How’s it different?

AF: The venture capitalists will be making two very different types of investments than they have traditionally made. One is that VCs will be investing in public companies as a private security, a PIPE, or sometimes known as a VIPE, a venture investment in a public equity. They’ll also do companies like Calistoga Pharmaceuticals, with more targeted types of enterprises whose ultimate exit is a sale, not an IPO.

X: Is the traditional venture-backed biotech model broken?

AF: Yes. It’s broken, or at least … Next Page »

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