Sale may keep the momentum in Seattle area’s biotech industry

AMGEN’S PURCHASE of Immunex means
that scientific talent could be recruited to
other cities — or it could be the opportunity
to build a stronger biotech community here.

By Luke Timmerman
Seattle Times business reporter

Immunex is the one company that has
proved Seattle’s biotechnology scene can
create a drug that makes a dramatic
difference for thousands of people, and build
a company worth billions.

That maturation into a full-blown
pharmaceutical company is one of the keys
that has turned Seattle into a biotech
hotbed, coupled with talented people and
discoveries from the University of
Washington and Fred Hutchinson Cancer
Research Center.

But now, with the region’s leading biotech
company soon to be controlled by
Thousand Oaks, Calif.-based Amgen,
industry insiders are concerned about the
consequences for the region’s future.

Whether Seattle catches up or falls further behind the cradles of biotech
civilization in the San Francisco Bay Area and Boston will depend on a few
things.

Industry insiders say top venture capitalists like Paul Allen’s Vulcan Ventures,
Frazier & Co. and ARCH Venture Partners, which have a track record of
supplying Seattle biotechs with cash, will have to continue to seed companies
here. At least the latter two say they are working together to do that.

Robert Nelsen is the managing
director of ARCH Venture Partners,
which intends to set aside millions
of dollars to keep biotech research
vital in Seattle. “All the ingredients
are in place,” he said, speaking of
the talent, visibility and experience
Seattle already has in biotech
ventures.

Among the companies on the cusp of getting their first approved product —
Icos, Corixa, Dendreon and Cell Therapeutics — at least one or two must
follow Immunex’s lead and break into the big leagues with successful products.

Plus, Amgen must remain committed to world-class research along Elliott Bay,
and second-tier Seattle biotech companies must beat out national headhunters
in the bidding for talented Immunexers jumping ship.

The value of those people can be seen in the fight for their skills. Some of
Immunex’s top people are getting four or more headhunter calls a day. Several
local companies say they are getting more résumés lately, and they’re
welcoming them. Venture capitalists are shaking Immunex’s organizational tree
for entrepreneurs, but they aren’t publicly promising any thrilling ideas yet.

Out of the limelight

Few say so publicly, but there is an uneasiness that Seattle’s biotech industry
could lose some visibility in the shakeup. Several local venture capitalists don’t
want to see Seattle lose momentum, and they say they are beginning to funnel
more money and technologies into startups here.

Robert Nelsen, managing director of ARCH Venture Partners in Seattle, said
his company is raising $400 million over the next eight months, with plans to
sink much more in Seattle biotech companies. Nelsen has had talks with
another prominent venture capitalist, Alan Frazier, about finding technologies
elsewhere and bringing them here, partly because they’d both like to cut down
on travel.

Frazier, who often sets the tone for other venture capitalists, puts about 10
percent of his company’s money here and wants to double his Seattle biotech
investments over the next three to four years.

Nelsen said his company has a similar attitude because Seattle has all the
necessities: leading-edge public research, available venture capital, a pool of
talented scientists, a desirable place for recruiting and a lower cost of doing
business than the Bay Area.

"All the ingredients are in place," Nelsen said.

Dendreon Chief Executive Christopher Henney, a founder of Immunex and
Icos, agrees on that point, but says Seattle is at a crossroads.

Immunex in its latter years became tightly focused on its one blockbuster —
the rheumatoid-arthritis drug Enbrel — instead of new ideas, he said, and
although investors are eager to back new startups with Immunex pedigrees,
he’s unsure how many ideas are primed or how many of its people want to
take the risk.

Henney also is concerned that Immunex brought Seattle visibility in financial
eyes, and that the second-tier companies need to start showing results in the
clinic to keep it.

"We need some other success," he said. "We need other companies to become
like an Immunex."

A troubled time

That’s partly because the Amgen-Immunex shakeup comes at a tender time.
The ImClone Systems scandal, a string of regulatory setbacks and clinical
failures have punished biotech stocks. In the Seattle area, Icos and Corixa
have each lost about two-thirds of their stock value because of regulatory
delays, and Cell Therapeutics’ stock has fallen even more on perceived clinical
problems. Earlier this year, ZymoGenetics pulled off the sixth-biggest biotech
IPO ever, and it is still hiring, but it has put off an expansion to conserve cash.

Nelsen said he believes the Amgen takeover will have a
catalytic effect. That’s because Immunex has had "big
company" ambitions, lucrative stock options and single-digit
turnover rates that have been good for its internal growth,
but stifling for startups. Dendreon CEO Henney and Steve
Gillis, another Immunex co-founder, left years ago and are
now running their own local companies (Gillis is CEO of
Corixa), and Targeted Genetics was an Immunex spinoff in
1992. But since Enbrel was approved in 1998, few
Immunexers have left, Nelsen said.

Bob Ferguson, an executive recruiter with Korn/Ferry International, said that’s
about to change. Some Immunex managers are getting four or five calls a day
from recruiters, and many tell him they will accept less money to stay in
Seattle because of the lifestyle and to be close to family, he said.

But some Immunex employees privately worry that so many will lose jobs that
they will flood the local market. The consequence could be a brain drain if they
are forced to take jobs in other parts of the country.

Bruce Carter, chief executive of ZymoGenetics, said his company has already
gotten a sizable number of Immunex résumés, and he believes many will stay
in Seattle. He remembers being in Britain in the mid-1980s, when Monsanto
bought Searle and shut down its pharmaceutical operation in Britain, scattering
its scientists. He said it was the beginning of biotech in Britain, and that history
will repeat itself.

"People will be leaving Immunex and they won’t want to go to Thousand Oaks,
and they will cause a re-flowering of biotechnology in Seattle," Carter said.
"Other companies here will benefit. For Icos, they need sales and marketing
people. Where will they get them? Immunex. ZymoGenetics needs people who
know how to develop drugs. Where will they get them? Immunex."

In the Top 10

Regional rankings tend to be spotty, but Seattle already makes everyone’s Top
10 list of biotech clusters. The Bay Area heads the list, with a foundation built
by pioneer Genentech, world-class research at the University of California,
San Francisco, and at Stanford, and hundreds of smaller companies.

Boston has a similar story, with Biogen as anchor company and Harvard and
the Massachusetts Institute of Technology in academic roles.

San Diego surpassed Seattle in the 1990s, mainly thanks to investments after
pharmaceutical company takeovers, and on the strength of UC, San Diego.
Seattle falls into the next tier, a status hundreds of regions are striving for, said
Walter Plosila, who has studied biotech clusters for Battelle Memorial Institute.

Plosila said chamber-of-commerce types tend to be overly alarmist about
losing corporate headquarters, mostly out of fear of losing philanthropic dollars.
Seattle’s real status in biotechnology, which Plosila termed "almost there,"
hinges less on having a corporate headquarters and more on whether Amgen
remains committed to world-class research here, the availability of venture
capital, and if the region can attract scientists.

Frazier, a veteran of Immunex, said the money and the attraction for scientists
is here. He recently brought a technology from Vermont and is recruiting
managers to run it here in Seattle. It’s a model he expects to keep following.

"There’s a tremendous number of great people already here, and we’re tired of
all the Bay Area problems," Frazier said. "It’s an expensive place to operate.
And whether its pre-Immunex or post-Immunex, we’ve reached critical mass
here and it’s accelerating."

Luke Timmerman: 206-515-5644 or [email protected].

Copyright © 2002 The Seattle Times Company

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Stephen Dunphy / Times staff columnist
Economic Memo: Risk and biotech go
together

The Seattle area should count
itself fortunate to have a
growing biotech sector
because a recent study by the
Brookings Institution says regions trying to create an industry
have an expensive, risky and time-consuming road ahead of
them.

Not that it’s stopping anyone. More than 40 states have
biotechnology as part of their long-range drives to improve their
local economies. Around the country, more than 80 percent of local
economic-development organizations list biotech as a top growth target. Several
have committed hundreds of millions of dollars on such efforts ranging from
industrial parks to tax breaks.

"The dream is that you take a research base and parlay that into an industry,"
said Joe Cortright, an economist with Impresa Consulting, in Portland, and the
lead author of the Brookings study.

Portland is a good example. The state is backing $200 million in bonds to help
Oregon Health & Science University build 200,000 square feet of high-tech labs
and recruit the talent needed to get an industry going. It has had some success,
increasing its share of federal funding for biotech research.

But the Brookings study shows Portland trails the pack in such measures as
venture capital, number of patents and biotech jobs. Portland was ranked among
28 third-tier cities in the study, making it unlikely Portland will ever reap the
sweeping economic gains it hopes for.

Seattle, on the other hand, is included among the five top biotech centers in the
country. "It’s striking that not only is the industry highly concentrated, but that
the leaders are pulling away," Cortright said. Measures of research used in the
study — National Institutes of Health funding and patents — are becoming more
widespread among the 51 metro areas, but Cortright said all the key measures
of commercialization, such as venture-capital investment and new-company
formation, are becoming more concentrated in the top five areas.

The five areas are the longtime leaders in the industry, Boston and San
Francisco, and three in which biotech is growing rapidly — San Diego,
Raleigh-Durham and Seattle.

"Together these five areas have accounted for 75 percent of the new venture
capital in biopharmaceuticals in the past six years, for 74 percent of the value of
research contracts from pharmaceutical firms and for 56 percent of the new
biotech businesses formed during the 1990s," the report said.

So far, none of the other 42 largest metro areas in the country "has developed a
significant concentration of biotechnology activity," the report said.

One of the reasons the top areas continue to expand may have more to do with
money and businesses than science and research. Two necessary elements
are needed for industry growth — strong research capacity and the ability to
convert research into successful commercial activity.

"Biomedical research activity is now relatively widespread, but thus far only a
few of the country’s 51 largest metropolitan areas have demonstrated the
entrepreneurial and financial capacity required for consistently generating
significant numbers of new biotechnology-related businesses," according to the
study.

Looking specifically at Seattle, the study sounds like a familiar recording. It
cites the importance of the University of Washington and the Fred Hutchinson
Cancer Research Center. This area’s industry has been driven by spinoffs from
those two key research institutions.

Seattle is definitely in the game, but others will have a hard time making it.
Why?

The scale of investment needed is staggering, especially research funding and
venture capital. In Seattle, biotech has garnered more than $500 million in NIH
funding annually for a decade and $750 million in new venture-capital investment
over the past six years. The totals reflect the level of effort needed for a
successful biotech industry.

Another reason is that conventional industrial-recruiting techniques don’t work.
Most biotechs start locally and remain local, tending to cluster in areas with
strong life-sciences research groups and major universities. Any area with a
strong biotech sector should focus on what it has, not what it might get,
according to the study.

Even if a region is successful, biotech takes time. It will be a decade or more for
any effort to bear significant fruit.

Cortright also thinks people are placing too much emphasis on the industry
itself.

"It may turn out to be naive to assume, as many seem to, that biotech in the
next decade will be a simple repetition of the impact that computers and the
Internet had in the last decade," he said.

There is no Moore’s law for biotech, he said, a reference to the rule of thumb
developed by Intel that computing capacity doubles roughly every 18 months.
No law limits the downstream economic benefits.

"Biotech may turn out to be more like nuclear power — a technology whose
economics have never really penciled out, and which has raised serious health
and moral questions that have delayed or impeded its widespread adoption."

Stephen H. Dunphy’s columns appear Tuesday-Friday and Sunday. Phone:
206-464-2365. Fax: 206-382-8879. E-mail: [email protected]. More
columns at http://www.seattletimes.com/columnists.

Copyright © 2002 The Seattle Times Company

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