Seattle biotech sector resilient in year with clinical and corporate upheaval

Immunex was the kingpin of Seattle’s biotechnology industry, the first to parlay homegrown science into a breakthrough, cash-cow drug.

By Luke Timmerman
Seattle Times business reporter

But just as it seemed to be leveraging that success into something bigger, Immunex hit the wall. It couldn’t make enough of its hit drug, Enbrel, and was taken over this year for $10 billion by industry titan Amgen. About 500 Immunex jobs were cut, key management left, and Immunex’s plans for a huge research complex along Elliott Bay were thrown into doubt.

The uncertainty in Seattle biotechnology came in the same year the ImClone Systems scandal — in which officials of the New York company withheld bad news from investors — cast a shadow, and the industry gatekeeper, the Food and Drug Administration, was deeply cautious about approving new treatments. Congress and statehouses frightened biotech investors with threats to regulate drug prices. Biotech stocks fell, and many companies’ cash ran low.

But amid the chaos, several Seattle-area biotechs that were limping early in the year showed signs of resiliency:

• Icos’ impotence drug was stalled by an FDA demand for more studies, but later approved in Europe.

• Corixa’s lymphoma drug was rejected by the FDA in March, but the company appealed, and convinced a panel of FDA advisers nine months later that it deserves to be on the market.

• Dendreon said it was unlikely its prostate-cancer treatment would work in the last stage of clinical testing, but when full results came, it showed substantial benefits for many patients.

Seattle biotech also saw its oldest player, 21-year-old ZymoGenetics, reinvent itself as an emerging public company. During the years it spent as a scientific wing of a European drugmaker, the South Lake Union company amassed one of the world’s most extensive collection of patents on gene sequences for potential biotech drugs.

The value of the technology is hard to peg because it will be years before scientists know if they work in people, but ZymoGenetics was able to leverage it to raise $120 million from investors in an initial public offering. It used the cash to draw up Seattle expansion plans, push its first potential drug into human tests, and boost its payroll from 310 to about 350.

Shaking loose talent

Some new people at ZymoGenetics came from, of all places, Immunex. Bruce Carter, ZymoGenetics chief executive, said losing Immunex was a blow to Seattle, but it also is shaking loose talent which will strengthen other companies.

"Years ago when I was in Britain, Monsanto acquired Searle and essentially fired everybody," Carter said. "It led to a diaspora that really led to the birth of biotech in Britain. I’m very confident we will see that here."

Any flowering will have to happen amid some ashes, for many cash-starved companies are barely hanging on. Northwest Biotherapeutics went public a year ago at $5 a share, started a late-stage clinical trial with a prostate-cancer treatment, ran low on money, quit the trial, and was de-listed this month. NeoRx and Targeted Genetics halted cancer trials to save cash. All three companies made deep job cuts.

Investors ignored new technologies like genomics and proteomics, gravitating instead to drugs on the doorstep of FDA approval as well as medical devices perceived to be quicker, less risky paths to profits. Big money was raised for several local medical device companies — $37 million for Seattle-based Vertis Neuroscience, $28 million for Seattle-based Calypso Medical Technologies and $22 million for Redmond-based Spiration. Quinton Cardiology Systems, a familiar Bothell company in the business of diagnosing heart problems, raised $28 million in an initial public offering.

Those companies aren’t working on potential cancer drugs, like many biotechs, but are focusing on big disease markets. Vertis has an FDA-approved electrical-stimulation device for back and neck pain, Calypso is attempting to develop better surgical tools for breast cancer, and Spiration is working on better surgical tools for emphysema and chronic bronchitis.

Those companies grew, but didn’t make noises about going public. There were only five IPOs in the biotech industry this year, down from 68 in 2000, according to Signals, an online biotech magazine.

Alan Frazier, a leading venture capitalist with Frazier & Co., said the survivors will be companies with several potential products. Pharmaceutical giants are still looking to replenish their research pipelines through partnerships, but beginning biotechs will continue to find venture capitalists "very conservative," he said.

"The next round of companies to follow behind Immunex at this point looks like Icos, Corixa and Dendreon," Frazier said. "Getting those companies to have honest-to-goodness products is crucial."

Triggers for growth

For most in the tech industry, it would be easy to let the year slip into a distant memory. Yet things of significance did happen. This article is part of a series in which we look back at singular events and issues that made an impact on how technology did business during the year.

Few in the industry expect investors to cheerlead again in 2003, but there are key events that could energize the industry. ID Biomedical, a company with operations in Bothell, will find out key data in February about how well its nasal-spray flu vaccine works. Dendreon is hinting it may sign a big partnership to co-develop its prostate-cancer treatment. Icos and Corixa will find out whether their drugs will make it on the U.S. market.

Amgen’s commitment to Seattle will be closely watched. The company insists it is following through on construction of the Helix Project, a $650 million effort to pull together 600 or more scientists to do world-class inflammation and immunology research. The job is set to be done in 2004.

Another source of hope: After two years without a leader, the FDA now has one, Dr. Mark McClellan, raising hopes that the agency will move faster to approve new drugs.

"We’re starting to see the pendulum swing where the FDA is taking a collaborative approach with companies, looking at the data objectively," said Dr. Mitchell Gold, the incoming chief executive of Dendreon.

Some deep pockets

Whether Seattle companies can take advantage of the new climate is one of the big questions of 2003. Seattle doesn’t have the venture capital of the San Francisco Bay Area or Boston biotech hotbeds, but Gold pointed out that Paul Allen’s Vulcan and Frazier are two deep-pocketed investors who are committed to local biotechnology.

Six weeks ago, Frazier was part of a group that backed a new $13 million start-up called GeneCraft, featuring a former Immunex scientist. Vulcan also broke ground on new biotech construction projects this year in the South Lake Union area.

The University of Washington and Fred Hutchinson Cancer Research Center are also still here, creating much of the basic research that is a vital springboard for biotechnology. The UW, in particular, attracted a gene-sequencing star in Dr. Robert Waterston. Top scientists can still be attracted here by Puget Sound, the mountains and a cost of living lower than San Francisco, Frazier said.

To be successful in the coming year, Carter said biotech companies will need to make fundamental progress in clinical trials and at the lab bench. Icos and Corixa are among the few with a shot at translating leading science into big money soon. For most of the rest, it will take years of work and more investor cash before learning if they have a hit, like Immunex.

"Next year will be a tough year," Carter said. "There won’t be a lot of drama; it will be a question of keeping your head down and grinding it out, doing what you say you’re going to do."

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

Copyright © 2002 The Seattle Times Company

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