Here's another:
Biotech Beach. First of two parts.
No easy cure | Fore more than a decade, biotech has been one of San
Diego's most powerful growth industries. But products -- and profits --
have been elusive.
Thomas Kupper
STAFF WRITER
08-Mar-1998 Sunday
San Diego's biotech industry
Ted Greene arrived in San Diego in 1978 with dreams of building a biotech
powerhouse. Twenty years later, he's just as ambitious.
His latest company, Amylin Pharmaceuticals, has spent some $200 million on
one drug, pramlintide. If it works, Greene thinks it could revolutionize
the treatment of diabetes, a deadly disease with a worldwide market of more
than 100 million patients.
It would be one of the industry's greatest victories, one that would
quickly boost Amylin into an elite group of hugely profitable biotech
companies.
The reality, however, is that despite a decade of work, Amylin is still at
least two years away from even applying to the Food and Drug Administration
for approval. Mixed results in late-stage testing sent investors running
last summer and wiped out half the value of Amylin's stock. Last week,
Amylin's partner, Johnson & Johnson, which was carrying half the costs,
backed out of the project.
"The timing of it has been disappointing," Greene said. "But I still think
the medical potential is quite exciting."
San Diego's biotech industry, a cluster of 21,000 scientists and other
professionals largely based in La Jolla, is filled with stories that share
a common theme with Amylin's: big dreams but no products.
After more than a decade of effort and huge investments into research, San
Diego has yet to produce a "home run" drug or dominant company that cranks
out one product after another.
In fact, the local biotech community has produced only two new drugs --
products from Idec Pharmaceuticals and Agouron Pharmaceuticals that both
won approval last year.
But, like Amylin, a growing number of local biotechs have products in phase
III trials, the make-or-break stage that can lead to government approval.
The next few years could thus be a critical period.
Success is important to San Diego's future, because the city has identified
biotech as one of the primary building blocks of a new economy for the 21st
century, one that will replace lost defense-related work with high-paying
technology jobs.
The county is home to more than 200 biomedical businesses, including more
than three dozen publicly traded biotechs.
Hopes for 'Biotech Beach'
San Diego will never become a Silicon Valley of biotech, though, with
millionaire chemists cruising Torrey Pines Road in fancy cars, unless
significant numbers of new drugs start to emerge from the laboratories
along La Jolla's "Biotech Beach."
The downside is troubling. Without products and the revenue they bring, any
company eventually will run out of money.
Investors, who have financed the growth of San Diego's biotech sector in
the hope of big returns down the road, have only so much patience.
"Eventually all the science has to be turned into products for the industry
to be sustained," said Peter Johnson, Agouron's chief executive. "But
there's evidence that's happening. Idec and Agouron could be the tip of the
iceberg."
While biotech's presence remains relatively small in a region of 2.7
million people with a $90 billion economy, rapid growth in the next few
years is possible.
An example of the potential is Thousand Oaks-based Amgen, the world's
largest biotech company, which employed as many people by itself in 1996 as
did all 29 publicly traded companies in San Diego -- around 4,600.
Other biotech clusters around the country also have more to show for their
efforts. East Coast biotech hubs in New Jersey and around Washington both
generated more product sales than San Diego's larger biotech community in
1996, the last year for which data are available.
The San Francisco Bay Area has produced industry powerhouses Chiron and
Genentech, profitable companies with stock market valuations of over $3
billion.
Ask many who work in San Diego biotech why none of their companies has
become the next Amgen and they give a similar answer: Be patient.
They say the reason San Diego biotechs are smaller and less successful
isn't that they're inferior companies, just that they're younger.
Losses are accepted
While years of heavy losses would be an indication of failure in most
industries, for young biotechs red ink is an accepted fact of life.
Investors put up their money with full knowledge that drugs can take a
decade or longer to develop, and employees understand that scientific
discovery isn't easy or quick.
"There's probably a very strong self-selection for people who can deal with
that," said Steve Worland, a scientist who's been at Agouron for almost a
decade.
Indeed, most of the industry's power hitters have been around longer than
any of San Diego's companies. Amgen, for example, began business in 1980,
while most of San Diego's top biotechs were formed in the late '80s and
early '90s.
Agouron, the first San Diego biotech to get a drug approved, was founded in
1984 and is one of the older local companies.
Additionally, some executives argue that the job has gotten harder than it
was for the industry's pioneers. The first companies sensibly picked the
easiest projects, they argue, and also had less trouble raising money
because investors were particularly hot for biotech stocks in the early
days.
The general rule is that it takes about a decade to discover, test and
launch a new drug, and that's roughly how long it took Amgen. The company's
first product, the anemia drug Epogen, won approval in 1989 and produced $1
billion in sales by 1992.
By that time frame, then, San Diego is entering a critical period. Within
the next few years, it should become clear whether a breakout company will
emerge, or if there will just be a lot of small companies that struggle to
maintain profitability -- if they reach it at all.
"It's too early for disappointment," said chief executive Stanley Crooke of
Carlsbad-based Isis Pharmaceuticals. "But it's about the right time to ask
the question."
Idec, Agouron lead
Idec and Agouron, the first two San Diego biotechs to get drugs on the
market, are clearly among the front-runners to break from the pack. Agouron
already has reached profitability on the strength of its AIDS drug Viracept
-- a feat that puts it in an elite club of fewer than a dozen profitable
biotechs nationwide.
Some observers think Viracept alone could go a long way toward positioning
the company near the top of the industry. The market for such drugs, known
as protease inhibitors, is growing fast, and Agouron is catching up with
the market leader, Merck & Co.
Already, the drug achieved sales of $91.8 million in the most recent
quarter, one of the most successful launches ever for a biotech drug.
Nearly all the other drug companies in La Jolla can outline scenarios for
similar success, though in most cases it's several years in the future.
With more than three-dozen publicly traded biotechs in San Diego County,
the odds would appear to suggest that at least a few could connect.
Two of the larger companies, Ligand Pharmaceuticals and Isis
Pharmaceuticals, have achieved stock market valuations above $300 million
with research strategies that have produced wide portfolios of projects but
as yet no products.
Ligand's work focuses in part on retinoids, a class of drugs the company
plans to test in diabetes and a long list of cancers. The company plans to
seek approval this year for a drug for AIDS lesions, a relatively small
market but an important test of the company's ability to commercialize the
technology.
'The next Microsoft'?
Isis and another local company, Vical, were featured in a June 1996 feature
in Worth magazine that sought to identify "the next Microsoft." The article
brought a lot of attention to the companies, but both are focused for now
just on getting their first products on the market.
Vical has patents on a technology it calls "naked DNA," which could have
nearly unlimited potential as a mechanism for genetically engineered
vaccines. Isis is developing so-called antisense drugs, which interfere
with the process genes use to make proteins.
"I think there's a possibility that someone will make a real breakthrough,"
Isis' Crooke said. "In fact, I'm increasingly confident that Isis will be
one that does it."
Another approach is to focus much of a company's attention on one drug, as
Amylin can do with pramlintide because diabetes is among the largest
disease markets. If the drug works, it would immediately make Amylin one of
the most valuable biotechs.
Similarly, Immune Response Corp. in Carlsbad is banking on success in very
large markets, though it has a portfolio of more than a half-dozen
projects. The company, co-founded by the late Jonas Salk, has late-stage
trials under way in drugs for AIDS and rheumatoid arthritis.
"Just with arthritis and HIV, we could be another Amgen," chief executive
Dennis Carlo said.
In the early days of San Diego biotech, there was little clue how long it
would take the industry to mature. The first San Diego biotech achieved
profitability in the mid-'80s.
That company, Hybritech, specialized in diagnostic products and narrowly
broke into the black in 1984, when its sales reached $14.6 million.
A year later, however, Hybritech agreed to be acquired by the Indianapolis
drug giant Eli Lilly and Co. Its legacy was a large cadre of executives who
disbursed to form new biotechs, companies that today are trying to
commercialize their first products.
"I believe that the company would have been successful," said former
Hybritech President David Hale, who remains a prominent figure in San Diego
biotech. "Whether it would have gotten to be the size of an Amgen or a
Chiron, it's hard to tell."
The two front-runners in San Diego today, Idec and Agouron, both have
pipelines of additional drugs in development, and both companies are
working to sustain their momentum. Idec hopes to follow its lymphoma drug
Rituxan with another lymphoma treatment and a drug for rheumatoid
arthritis.
Revenues limit risk
Analysts think Rituxan alone could make Idec profitable, though the company
only began selling the drug at the end of last year and it's too soon to
tell how it's doing. Just having revenue coming in, though, can be an
advantage.
"That puts a company into an elite group where the risk is much more
limited," said biotech analyst Peter Ginsberg of Piper Jaffray. "It shows
that your clinical team and your scientific team and your regulatory team
have the ability to bring a product through."
Agouron suffered a setback with its No. 2 drug late last year that left its
stock price lower than it had been before Viracept won approval. The
company halted development of its cancer treatment, Thymitaq, and dissolved
a cancer research collaboration with the pharmaceutical company Roche.
Johnson, the company's chief executive, said two cancer compounds Agouron
has in early development could make it to market by early in the next
century -- fast enough for Agouron to maintain the momentum it is building
with Viracept.
The more revenue Viracept brings in, of course, the more there will be to
pay for other research and the higher the odds of the work's paying off.
That's the advantage larger biotech companies have -- which San Diego's
companies don't have yet.
"The connection between large products and staying power is a real one,"
Johnson said. "Amgen's at that scale. It's one of the biggest problems for
the rest of us."
How local biotechs stack up
Here's how some of San Diego County's more prominent biotechs compare to a
few of the industry leaders:
Company...Location..Market capitalization..Revenue..Profit/Loss..Employees
.................(1-2-98)...............(1996) ....(1996)
Amgen...Thousand Oaks...$14.2 B...$2.2 B...+$679.8M.....4,646
Chiron Emeryville $ 3.0 B $1.2 B +$55.1M 7,434
Genentech South San Fran. $ 2.8 B $904.6M +$118.3M 3,071
Biogen Cambridge, Mass. $ 2.8 B $259.7M +$40.5M 675
Centocor Malvern, Pa. $ 2.5 B $135.5M -$12.8M 545
Agouron San Diego $906.2M $132.1M* -$42.8M 708
Idec San Diego $646.7M $ 30.0M -$5.0M 265
Advanced Tissue Sciences
San Diego $460.5M $ 14.6M -$22.4M 196
Ligand San Diego $420.7M $ 36.6M -$37.3M 329
Isis Carlsbad $336.2M $ 22.6M -$26.5M 287
Immune Response
Carlsbad $251.9M $ 7.0M -$21.0M 146
* fiscal year ended 6/97. |
