Bankroller for Biotech industry, Alan Frazier has formula for success

Alan Frazier, one of Seattle’s most prominent biotech financiers, says the industry needs to nurture links with Big Pharma, attract more venture-capital firms and build strong public support.

Alan Frazier is one of Seattle’s few big-league biotech money men. He raised early cash for Immunex, founded a venture-capital firm in 1991 and made enough shrewd investments to get $400 million — mostly from pension funds — for young companies.

By Luke Timmerman
Seattle Times business reporter

There are a few problems, though. The biotech industry has been wounded locally by the sale of Immunex to California-based Amgen and by a long bear market that has just begun to show flickers of life.

Caution is in the air. Frazier has sunk less than one-third of his most recent fund into companies, leaving plenty of "dry powder," in industry lingo, to be invested.

Now Frazier, a 52-year-old Northwest native, is working with officials who are pinning the region’s economic hopes on biotech.

Some grumble that he touts the Northwest while investing more in California, which is true. But two of his firm’s leading hopefuls, GeneCraft and Calypso Medical Technologies, are Seattle-based.

Frazier talked recently about biotech investing and the region. Here are excerpts:

Q: A few months ago, the biotech industry was in the worst three-year stretch for raising money it had seen. But stocks have rebounded. What changed attitudes?

A: When you saw week after week and month after month of increased (Food and Drug Administration) approval rates (for new biotech drugs), that was dramatic. That drove the markets.

Q: But biotech investors still appear extremely cautious for anything other than blue chips like Amgen and Genentech.

A: I look at the market as having three segments. The big boys, as in Amgen. The mid-caps, as in Icos and Corixa (Frazier invests in Seattle-based Corixa). And the small caps, as in under $200 million (market value). My sense is the market is really quite positive about the big boys but still nervous about the mid-caps’ dependency on one product or another. There’s a clear differentiation between the top and bottom two segments.

Q: How long should it realistically take for a biotech to mature, to make money?

A: I’d say it typically takes close to 20 years.

Q: Do investors have the patience to take companies all the way?

A: I don’t think venture or public investors have that patience. That’s why we’re building companies differently.

Q: Can you describe the new model?

A: We will try to shorten the period of time before (an experimental) product goes into humans by either licensing from Big Pharma or from (government-funded) research institutes. So instead of starting at ground zero, you’re starting at year 4.

Q: Many have left Immunex with a lot of money, and the refugees have created only one significant startup. Will this talent exodus help the industry?

A: I don’t think it will. So many people stayed so long at Immunex, they made a fair degree of money and didn’t need to start a company. But we already have three significant companies in town created by people who left (Immunex) — Dendreon, Corixa and Icos.

Q: Many elected officials tout biotech as the next regional economic hope. But Immunex at its peak had only 1,600 on its payroll in Washington. Will this industry provide high-wage jobs for large numbers of people?

A: I don’t think it will, in the short term. If we are aggressive and smart about supporting biotech, including nonprofits, it will be a significant contributor to our economic development.

Q: What ingredients does Seattle have for a biotech center?

A: It has absolutely world-class research that either Northwest companies or other people will take advantage of to make meaningful companies. It also has quite a talented and extensive employment base. It is an incredibly livable, somewhat sophisticated city. And we have an entrepreneurial culture.

Q: What’s missing?

A: The (numbers) of entrepreneurial, venture-backed companies that a Bay Area, San Diego or Boston have. We have some very fine companies here, but we don’t have what those areas have. We do not have the big pharmaceutical-research units that San Diego and Boston have. We’re starting to see a contraction in the number of venture-capital companies here, and that’s a problem.

We are an active venture investor, and some others are, but there’s a limit to what we can do. We need another tier of smaller, hungry venture-capital firms to create companies.

Q: What does Seattle need to do to catch up?

A: It needs luck. One of the things that helped San Diego was (that) many of their companies were acquired by Big Pharma companies, which used the acquisitions as beachheads for expansion. That would be terrific if it happened here. But it will be very hard to catch up.

Q: What public policy can make a difference?

A: Support for the research institutes to blossom and to make South Lake Union a mecca for more world-class research. That could be enough.

Q: Where do you see the next big opportunities?

A: The biggest improvements in our health care will come from biopharma. You’ll see the continued evolution of targeted drugs that hit a smaller population with increased effectiveness. We’re going to have more smaller products, instead of blockbusters and me-too developments.

Q: Do you see technologies shortening the decadelong timelines and improving the odds in drug development?

A: I believe so. There are technologies that try to predict the toxic nature that kills drugs. About two-thirds of the cost (of development) is from drugs that fail, so reducing the failure rate is key. The other huge cost is for clinical trials into the thousands (of patients). If you look at a product that has a targeted clinical trial, it can get by with a much smaller number of patients in testing, and that will save money.

Public policy has to allow profitability, enough to pay for (research and development). Industry has to find a much more efficient way of creating drugs. If we can’t do both, we’ll have way too much of our (gross national product) spent on health care.

Q: Sen. Warren Magnuson knew scientists and used his influence to help build the University of Washington’s medical school and the Fred Hutchinson Cancer Research Center, foundations for the biotech industry. Which movers and shakers in this generation can make something like that happen?

A: You’ve certainly seen mover-shakers in Washington, D.C., in both parties, push for big increases in the National Institutes of Health budget. But people are going to have to stand up and take political risk to make the next big advances around here. In South Lake Union, we can let that happen in incremental steps, with individuals scraping for money, or we can do something dramatic. That takes state money and federal money.

Q: What about cooperation between Mayor Nickels and Paul Allen?

A: It needs cooperation between all those parties and industry and research institutes. This should be like back in Forward Thrust days (the 1960s King County plan that built parks and pools). Some amazing things happened around this community.Luke Timmerman: 206-515-5644

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