By Gina Giacopuzzi
Gina Giacopuzzi is the staff writer for www.sandiegonewsroom.com, where this article originally appeared.
As San Diego-based biotech Nanogen recently announced its filing for Chapter 11 bankruptcy, and California database WARN names biotech as one of the top three industries shedding jobs in 2009, it’s easy to assume that biotech has been hit just as hard by the recession as other industries. Yet, in the midst of layoffs and tightening capital markets, biotechs are changing their business models and finding new ways to survive.
“It’s a tough time for everybody, especially San Diego’s early- and mid-stage biotechs,” said Joe Panetta, president and CEO of BIOCOM, the regional life science association of Southern California. “It’s no secret that most raise only two years of cash at a time, and it’s been six to eight months now that capital has been frozen.”
However, Panetta and biotech industry analysts have seen an increase of virtual companies--biotechs with a core group of people to manage the company but outsource the major development work. In effect, biotechs are putting their collective heads together to combine expertise and research, making the companies more appealing to investors and venture capitalists. Venture capitalists are still there---as evidenced by newcomer Anaphore’s ability to raise $38 million for its research on protein therapeutics.
“For us it was not hard,” said Anaphore CEO Katherine Bowdish, Ph.D. “It was a combination of things---an experienced management and scientific team, a platform that had validation, and a top-tier investor syndicate that continued through Series A financing.” Anaphore was created through the acquisition of a Danish firm that spent six years establishing the technologies and platform for protein therapies.
Dr. Bowdish says Anaphore will utilize outsourcing in the future. “We have an operational wet lab where most of our work is carried out,” she said. “I believe we’ll ultimately see outsourcing of manufacturing.”
Ernst & Young’s 2009 Global Biotechnology Report found that, despite a strong financial performance in 2008, the biotech industry will undergo deep, systematic changes that require “more durable models for funding innovation.” One of those new models may be the virtual company.
The virtual model has taken on a life of its own,” said Ian Wisenberg, the founder of BioGlobal Consulting Group. “We’re trying to leverage what little capital we have to get us further down the pipeline.”
No longer will companies pour hundreds of millions of dollars into something that fails, according to Panetta.
“The idea of trying to create a pharmaceutical company out of a venture biotech may not be something the markets have an appetite for,” he noted. “By relying on outside expertise and consolidated resources, there’s a greater guarantee of success.”
The age of gutsy entrepreneurs and “walking-dead” companies surviving on capital may be drawing to a close, and Wisenberg thinks that’s a positive development.
“(Biotech) has evolved, not primarily through the financial meltdown but more so because of how expensive biotech had become,” Wisenberg said. “One has to figure out a more efficient, practical model that will generate significant technology and therapies in shorter periods of time.”
Companies are being pressured into developing competitive business models as more and more biotechs turn to grants as a means to access capital. Recently, there were a total of 15,000 applicants for 200 National Institute of Health grants. Companies with existing technologies and proven track records, Wisenberg said, will weather the storm.
“Venture capitalists are saving money for existing portfolio companies where there’s a glimmer of hope, but investors are still there,” he said, referencing Aragon Pharmaceuticals, a San Diego-based company that develops therapeutics for hormone-resistant cancers. Aragon received $8 million in funding just last week.
Also impacting the survival of the biotech industry is the interplay of government and university funding. Researchers come to San Diego for the tight-knit biotech community and the technology infrastructure.
“I knew that I could recruit teams very quickly and efficiently here,” said Dr. Bowdish. “San Diego’s biotech community is a great place to work. We’ve got not only lots of great companies, but a wealth of institutions---universities and private research institutions.”
Wisenberg stresses the need for California to remain competitive despite budget difficulties. State budget woes that affect the public university system could in turn affect publicly-funded research centers.
“We’ve already had issues with respect to the cost of doing business here,” he said. “To attract business will be tough… (Other regions) are becoming aggressive in pursuing biotech clusters. We try to minimize or mitigate the lack of financial incentives with everything else. Companies are usually successful here because of our proximity to UCSD, Scripps, and the research community.”
Like many other sectors of the economy, biotech is undergoing some drastic structural shifts. Unlike some sectors of the economy, it’s poised to come out ahead. Wisenberg believes the 21st century will be the era for the life science industry.
“We have to provide new solutions,” he said. “The industry will prevail, and it will emerge stronger.
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