After a year of struggle, Biotech's feeling better
By Luke Timmerman
Seattle Times business reporter
JIMI LOTT / THE SEATTLE TIMES
Steve Gillis is CEO of Seattle's Corixa, which won approval in July to sell its lymphoma drug, Bexxar.
Biotech was in such bad shape eight months ago, Steve Gillis said it was like a patient being hit by waves of chemotherapy. Companies were struggling to survive the longest run of investor fear in two decades.
Two months later, Gillis' Seattle-based Corixa cashed in on fresh optimism, raising $105 million.
Things are not as dire for the industry as they were a year ago, partly because they couldn't get much worse.
Last year, the Food and Drug Administration had just refused to review ImClone's highly touted cancer drug Erbitux, ImClone's founder pleaded guilty to insider trading for using that information before it was made public, the FDA was criticized for being too cautious in its approval of new drugs, and politicians were talking about drug-price controls.
Wall Street thought biotech was smoke-and-mirrors, and few invested.
The momentum returned in 2003. The FDA got a new leader who started approving drugs with borderline effectiveness, the government agreed to pay for seniors' drugs, and one biotech drug saved lives of patients with colorectal cancer.
Biotech stocks rose 44 percent, and investor checkbooks opened up for companies that look able to get moneymaking drugs on the market.
And the fundamental forces haven't changed: Baby boomers are getting older and demanding better health care.
But the 2003 picture wasn't all rosy. Researchers lost jobs, or worried about it, as companies were pressured to show their drugs work now, not 10 years from now.
Venture capitalists did not launch a major biotech startup in Seattle this year. No local biotech company went public.
In addition, the FDA is talking about allowing generic drugs to compete with biotech drugs for the first time, a move that would hurt biotech companies.
"There have been some pockets of good news this year, but we're not fully out of the woods," said Gillis, Corixa's chief executive. "There's some health out there, but the patient is under restrictions."
Still, there was a tremendous flurry of biotech action in Seattle. Paul Allen plowed ahead with a plan to turn South Lake Union into a biotech magnet and hired a former Immunex president to invest in companies that could fill the labs. He gave $100 million to start the nonprofit Allen Institute for Brain Science in Seattle, a new haven for computational biologists to map trillions of cells in the mouse brain and make it publicly available for research into neurological diseases, like Alzheimer's.
Bill Gates gave $70 million to strengthen the University of Washington's grip as a world leader in genomics and bioengineering. He gave another $10 million for malaria research at an emerging nonprofit, Seattle Biomedical Research Institute.
The UW hired a national expert in transferring technologies to businesses, an office that had been in disarray. The world's No. 1 biotech, Amgen, kept its word by finishing the $625 million Helix research center along Elliott Bay that was started by Immunex, the Seattle company it had bought.
Gov. Gary Locke's advisers put together an initiative to blend the state's strengths in computer science and biology into one of the state's most ambitious economic-development initiatives ever.
The local crop of leading biotech companies all had some good news, and headaches. Here's a rundown:
• Icos. The Bothell company entered the pharmaceutical big leagues by winning FDA approval of Cialis, a longer-lasting rival to Viagra. Now it faces the fiercest marketing competition in the industry. Even if it's successful, it will take several years to achieve profits that can fuel more research and development.
• Corixa. The Seattle company won FDA approval for the targeted lymphoma drug, Bexxar. It set the price at $27,000 per patient and persuaded Medicare to pay for it. But Corixa is under tremendous investor pressure to prove Bexxar will sell. Investors will judge the company more on sales than research, so it cut 75 research jobs and began hiring a sales force.
• Dendreon. Under first-year CEO Mitchell Gold, the Seattle company bought a struggling San Diego company and pocketed its cash. Dendreon showed scientific evidence that its method of training the body's immune system to fight prostate cancer works, and it started a 275-patient trial to confirm it. The company has plenty to prove; no therapy of its kind has been approved for cancer. But it won a regulatory designation that could speed its path to the market.
• Seattle Genetics. It hired a pair of stellar managers from Immunex and Eli Lilly to run science and clinical testing. Its lead experimental drug showed hints of prolonging lives in lung cancer but, at best, is several years from market.
• ZymoGenetics. The Seattle company spent the year proving it can discover and develop drugs. Three drugs progressed to human tests, as promised, and the company raised cash. But shifting from the dreamy academic world of research to the discipline of drug development is a cultural tilt. Investors will have little patience over the years if things get bumpy.
• Targeted Genetics. It rebounded after last year's cash crisis. The Seattle company pushed its cystic-fibrosis drug and experimental AIDS vaccine into further human testing and persuaded partners to pay for it.
• Cell Therapeutics. The Seattle company bought an Italian biotech, raised $75 million and got its hands on a lymphoma drug in late-stage testing. But it briefly halted one trial and reduced the dose of a lung-cancer drug, after some patients died earlier than expected from side effects. But the trial isn't expected to miss a beat.
"The FDA's willingness to work with companies, especially cancer-drug companies, was important, because we're an oncology-centric bunch in Seattle," said David Miller, president of Biotech Monthly. "The FDA has basically said, 'If you have a cancer drug without many side effects, come in and talk to us about it.' "
Many private biotechs moaned about how venture capitalists have grown too conservative, burned by memories of the bubble bursting, and are unwilling to bet on early-stage ideas.
The year's biggest local round of funding, $40 million, went to Corus Pharma, a Seattle company developing inhaled drugs for severe asthma and cystic fibrosis.
In May, top venture capitalists MPM Capital, Versant Ventures and Arch Venture Partners sunk $15 million into Accelerator, a partnership with Leroy Hood's Institute for Systems Biology to create local startups. No companies have emerged yet.
"Generally the number of companies is not high, but the quality is higher, which is by far the most important indicator," said Robert Nelsen, a venture capitalist with Arch Venture Partners. "One Immunex or Icos can make a big difference, so we are looking to create the next one."
Bob Overell, a venture capitalist at Frazier Healthcare Ventures in Seattle, said the financial climate is beginning to pick up, with a half-dozen or more local financings percolating over coming months.
"It has potential to be a banner year," Overell said.
No one doubts Seattle's research potential. The UW wins more competitive grant money from the National Institutes of Health (NIH) than any university except Harvard, and it has a faculty with three of the eight world leaders of the Human Genome Project.
The Fred Hutchinson Cancer Research Center is led by a Nobel Prize-winner whom scientists want to work for, and it wins more NIH money than any free-standing research institution.
Hood, the inventor of high-speed gene-sequencing machines, has built his nonprofit into a $20 million-a-year operation in four years.
The Bill & Melinda Gates Foundation has stuck with its goal to wipe out diseases of the developing world, making Seattle a hotbed of that research.
The big question though, is whether the region has the moxie to parlay great research into great, enduring companies. The next crop of companies vow to stay independent and based here.
"(Immunex) is not the only one with the ability to get things commercialized," said Dendreon's Gold.
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