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SCIENCE & TECHNOLOGY |
COVER STORY Volume 79, Number 10 CENEAR 79 10 pp. ISSN 0010-2347 [Previous Story] [Next Story]
Tony Czarnik is enjoying one of his favorite pastimes: showing off San Diego. His two-seater BMW speeds along the spectacular palm-tree-lined coast and into the dense clusters of biotechnology companies along North Torrey Pines Road. Czarnik, a veteran of San Diego biotech start-ups and editor of the Journal of Combinatorial Chemistry, sits up suddenly, exclaiming as he points to a building emblazoned with the logo of Graviton, a company launched recently by a former colleague.
He explains that the building previously housed the biotech firm Irori. Czarnik's colleague Michael Nova was a cofounder of Irori; but in cutthroat industry fashion, the company unceremoniously gave him the boot a few years ago. After licking his wounds, Nova moved on, founding the high-tech Graviton. Irori became part of Discovery Partners International and relocated to new digs, and Nova has apparently reclaimed the old spot. "I am just tickled," Czarnik chortles, "that Michael got his space back." Such coincidences are perhaps inevitable in a place where dozens of biotech companies lie within a few miles of each other. Those who move in San Diego's biotech circles love to say--only half-jokingly--that everyone there has at some point worked with everyone else. Jokes aside, the city is utterly serious about making the area a haven for biotechnology companies, whether they are focused on drug discovery, bioinformatics, or proteomics. And according to those who live there, San Diego is indeed a haven. The corporate environment can be ruthless, however, and scientists working in the uncertain world of drug development are as likely to find themselves "uninstalled" as anywhere else. But as a whole, San Diego has a reputation for being uncommonly nurturing of its proliferating small biotechs, its citizens say. The support of myriad local networking and business organizations has undoubtedly played a role in making the area the third largest biotech hub in the U.S. Then, of course, there's the locale itself. San Diegans are unabashed about proclaiming their town as second only to Eden, a balmy paradise that shines in comparison to the unpleasantries of Boston's freezing winters or the San Francisco Bay Area's earthquakes. "I still have yet to find someone who says they don't like San Diego," says Riccardo Pigliucci, chairman, president and chief executive officer of Discovery Partners International, a company that provides drug discovery services for the pharmaceutical industry.
That a lot of potential is brewing in this rich environment hasn't been lost on big pharmaceutical companies. In the past few years, companies such as Merck, Pfizer, Dow, and Johnson & Johnson have set up facilities in San Diego, usually assimilating a small San Diego biotech or two in the process. Still, the San Francisco and Boston areas are unquestionably the largest of the U.S. biotech hubs. They're loaded with historically great research institutions, including Harvard University, Massachusetts Institute of Technology, Stanford University, UC Berkeley, and UC San Francisco. San Diego comes in at a fairly distant third in terms of the number of public and private companies: some 120 compared with more than 170 each for San Francisco and Boston. But while the two reigning champions engage in a cross-country chest-puffing contest, San Diego is happy to enjoy its status as the little resort town that could. In less than two decades, it has managed to transform itself from a vacation hot spot with a military-based economy into a so-called biotech beach. TO BE SURE, biotechnology itself is relatively young. The early 1970s saw the development of recombinant DNA technology at Stanford and UCSF. The first biotechnology company, South San Francisco-based Genentech, followed in 1976. Harvard scientists, who isolated the first gene in 1969, were also involved from the get-go. Down in San Diego, though, things were at a different stage. Scripps, UCSD, and the Salk Institute each had been founded little more than a decade previously and were just beginning to develop.
A couple of local scientists were entertaining some entrepreneurial ideas. Ivor Royston, a professor at UCSD's medical school, and his colleague Howard Birndorf, a biochemist, realized that monoclonal antibodies--discovered in 1976 by British scientists--could be harnessed to make kits that quickly diagnose diseases. They teamed up with Howard E. (Ted) Greene, who was an executive at what is now Baxter, in Orange County. In 1979, they founded a company they called Hybritech. By modern standards, the company's initial financial particulars were "laughable," Greene says: The company was founded with $300,000, and Greene paid himself $40,000 a year. Back then, few companies were started with the help of venture capital. Additionally, companies had to show a profit before they went public. That climate changed drastically in 1980, when Genentech went public before it was profitable--and its stock soared. It was in this changing environment that Hybritech was founded. The company prided itself on its unconventional, unconstrained business style, which appeared to work. By 1986, Hybritech had 800 employees and was thriving. Enter pharmaceutical giant Eli Lilly, which was so excited by what it saw in Hybritech that it bought the company for about $500 million. Unfortunately for Lilly, Hybritech employees were not quite as excited. "Most people joined Hybritech because they wanted to be in a small, independent company," Greene says. Lilly was a big firm that moved slowly and conservatively. "Eventually, the Lilly culture swamped Hybritech's wild and crazy crowd," he recalls. And so one by one the Hybritech leaders flew the coop and started their own companies, producing a family of companies that includes Gensia Laboratories, Ligand Pharmaceuticals, IDEC, Dura Pharmaceuticals, and Nanogen, to name just a few, as well as several venture-capital companies. Lilly threw up its hands, sold Hybritech, and pulled out of San Diego in the mid-1990s. Electronic technology also entered the San Diego picture in 1985 when UCSD computer science professor Irwin M. Jacobs founded the telecommunications giant Qualcomm. As a backdrop to this, however, San Diego, with its Naval base and aerospace and defense firms such as General Dynamics, was still known primarily as a military town. "We built airplanes and missiles, and people came here to go see Shamu the killer whale and go to the zoo," says Joseph D. Panetta, president of Biocom, San Diego's biotechnology industry organization. BUT THE COLD WAR was ending, and by the early '90s, defense spending had been cut drastically and aerospace companies were closing their San Diego operations. "The economy collapsed almost overnight," Panetta says. With close to 10% unemployment, "we had to do something to pick ourselves up and get out of the economic downturn," he says. The seeds of high technology, including biotech, had been planted, and the city seized on the sprouting industry. "All of a sudden, people with the city were willing to help make government more business-friendly," Panetta recalls. The city began to relax some of its more rigid regulations surrounding construction, zoning, and permits, he says. And soon, San Diego was becoming a spot on the biotech map, says Bradley J. Fikes, who has covered the scene in San Diego and nearby La Jolla since 1990 as a biotechnology reporter with publications such as the San Diego Metropolitan. "People coming from Japan would know where La Jolla was," he says. UCSD founded its high-tech business networking organization, Connect, in the mid-1980s. "And local bankers, real estate developers, city government, newspapers--all of which create an environment that nurtures little companies--were wildly crazy about biotech," Greene says. "I don't know where we'd be if it weren't for biotech," remarks Richard A. Lerner, president of Scripps. "Probably a ghost town." Indeed, the ever-blooming Scripps, under Lerner's leadership, has been instrumental in fostering an esprit de corps between industry and Scripps' scientists. THE CITY'S SUCCESS was a bit unforeseen, notes Edward A. Dennis, chairman of UCSD's chemistry and biochemistry department. "You would expect the San Francisco Bay and Boston areas to be leaders, given where they were in terms of high-tech and academic institutions," he says. "But you wouldn't have predicted in the 1960s that San Diego would be named with the Bay Area and Boston." Currently, the town's entrepreneurial bent is almost unparalleled. A report on California's biomedical industry issued by the California Health Institute lists the number of biomedical companies started by UCSD faculty at 63, bested only by Stanford's 64, and higher than UC Berkeley, UCSF, and California Institute of Technology. "UCSD is a start-up university," says Robert C. Dynes, UCSD's chancellor. Several of these companies have successfully brought drugs to market, including IDEC with Rituxan, which treats non-Hodgkin's lymphoma; Agouron Pharmaceuticals with Viracept, a protease inhibitor; and Isis Pharmaceuticals with Vitravene, which treats cytomegalovirus retinitis, an eye infection. The area has also had its share of setbacks. For example, in January, Alliance Pharmaceuticals laid off 20 of its workforce after discovering safety problems during trials of its blood substitute Oxygent. Initial public offerings in San Diego biotechs have jumped since 1999, when only one company, Invitrogen, went public, raising $52.5 million. But last year, six San Diego biotechs--including Sequenom, Illumina, Arena Pharmaceuticals, and Discovery Partners International--had initial public offerings, raising a total of $695 million. Success also manifests itself in the numerous buildings springing up. The Novartis Research Foundation is building a 180,000-sq-ft facility in La Jolla for its Genomics Institute, headed by Scripps professor Peter G. Schultz. North of San Diego in the small town of Oceanside, IDEC is building a new manufacturing site. "I can't remember a time in the past five years when I haven't seen construction," says Tammy Dwyer, an associate chemistry professor at the University of San Diego and chair of the American Chemical Society's San Diego Section. Steven P. Briggs, who heads Syngenta's Torrey Mesa Research Institute (formerly the Novartis Agricultural Discovery Institute), says San Diego is unquestionably the place for his facility. "When they hired me, they told me to put it wherever I thought would be best," he says. Briggs says San Diego offers potential employees a place that's attractive not just to them, but to their families as well. Boston was nixed for its weather and urban environment, he says. "We also ruled the San Francisco area out--nobody can afford to live there." The symbiotic relationships between businesses also were appealing, Briggs says. For instance, the crowded Torrey Pines area is experiencing a parking crunch, so the Torrey Mesa Research Institute is donating some bioinformatics support to a cancer research institute in return for parking spaces. "There are endless examples like that," he says. "I think everybody's very focused on ensuring the industry as a whole does well," says Douglas Obenshain, a partner in Ernst & Young's San Diego office. THAT PHILOSOPHY inspired biotech consultant Tom Beattie during his tenure as chair of the San Diego Section. Monthly meetings used to be sparsely attended affairs, but when Beattie started to get corporate sponsorships and to bring in different speakers, attendance soared to more than 100. Dwyer notes that the membership reflects the biotech demographic--a large number of medicinal or organic chemists under age 40. "Our biggest meeting attendance happens when we bring in a hard-core synthetic organic person," she says. UCSD's chemistry and biochemistry department's 30-year-old industrial advisory board reads like a who's who of academic, chemical, and pharmaceutical leaders, who take an active role in helping not only each other, but the many UCSD students who have industrial aspirations. "I enjoy talking to people at school who want an idea of what it's like out here," says Dan Cook, who recently stepped down as vice president for chemistry at Isis Pharmaceuticals and is founder of a new company, NuMAX Pharmaceuticals. But the increasing coziness between academia and industry has made some people nervous. Notably, partnerships between Syngenta (formed from the agrochemicals operations of Novartis and AstraZeneca) and UC Berkeley's plant and microbial biology department led to protests from students and faculty concerned about academic freedom. And back in 1993, a deal between Scripps and Sandoz (a forerunner of Novartis) was scaled back after government criticism. Recent editorials in Science [291, 553 (2001)] and Nature [409, 119 (2001)] voice concern about the issue, warning that academic integrity will depend on stringent oversight. But while a campus like UC Berkeley might be deeply suspicious of such interactions, San Diego welcomes them with open arms. Greene says in biotech's early days, the academic community at UCSD was "pretty hostile" to the idea, but that the success of Hybritech helped thaw the ice. "When they began to realize that academicians can only take things to the point of publishing data and that it takes commercial enterprise to put [that data] to use, they began to change their philosophy," he says. "Today, most professors who are in the top tier are very involved with a variety of commercial undertakings."
Nevertheless, Dennis says UCSD takes the issue very seriously. "Universities have to deal with many tricky questions--how to both promote industry but prevent conflict of interest and retain academic ideals," he says. With the roiling mass of small biotechs, it was perhaps inevitable that big companies wanted a piece of the action. Merck recently bought Sibia Neurosciences; Warner-Lambert, now part of Pfizer, bought Agouron; Dow bought the agricultural biotech company Mycogen. For the most part, the town is happy to be receiving attention from the big guns. But some of the locals haven't forgotten the disastrous relationship between Hybritech and Eli Lilly and view the phenomenon with a bit of trepidation. Beattie, however, noting the difficulty of seeing a drug through to market, believes the participation of big companies is a natural evolution. Small firms can move more quickly during drug discovery, he says. "But when it comes to development, preclinical work, and human trials, we all have to play by the same rules--it's a very expensive process and takes a long time. It's something very few small companies can manage on their own." Panetta acknowledges that "there's a bit of apprehension about big corporate culture and how it clashes with the culture we've created here in San Diego." But he believes the big companies will end up absorbing some of the Southern California style rather than the other way around. For example, when his company, Mycogen, was merging with Dow, the chemical giant didn't know what to make of them, he says. "We were all in polo shirts, and they couldn't understand how that could be conducive to working hard. But gradually, we began to see they were wearing polo shirts more and more themselves." UCSD CHEMISTRY and biochemistry professor Nathaniel S. Finney is a little more circumspect. Though he still thinks the pharmaceutical giants will benefit San Diego, he worries about the changes that might occur in its interactive, collegial environment. "Right now, many local pharms trade information to a really surprising extent," he says. "But in big companies, you walk into a lab and the scientist is taping paper over the dry erase board because they don't want you to see what they're doing." San Diego's pace is not likely to slow, but popularity does comes with a price. The once sleepy town is beginning to experience the same problems that plague any high-density area: more traffic, higher real estate prices and lower availability, and--especially in California--an energy shortage. While housing prices are not as extreme as in the San Francisco area, they're still higher than they used to be, and much higher than in the Midwest. "Compared with Texas or North Carolina, San Diego can't compete," Fikes says. Some companies are also starting to look for lab space outside of the chock-full, tightly knit Torrey Pines area cluster. Isis Pharmaceuticals was one of the first biotech firms to locate in less expensive Carlsbad, a town about 20 miles north of San Diego, and more companies are following suit. Even farther away is Temecula, located between Irvine and San Diego. The town has started a Connect program modeled after the one at UCSD to help nurture its budding high-tech center, which includes the medical device giant Guidant. Traffic has also become a headache, particularly along Interstate 5, which runs through the center of the city. "When I first got here, the freeways were wide open and empty. I used to drive 20 miles, and it would take 20 minutes. Today, it takes 45 minutes to an hour," Greene says. "Commuting is a nightmare," Dwyer adds. She drives 20 miles south out of her way to take her daughter to school, rather than sit in stop-and-go traffic.
"We've got companies' electricity bills going up $70,000 to $80,000 in a month," Panetta says. Natural gas bills, he says, have gone up as much as 100 times, noting that one company doing sophisticated fermentation work saw its December gas bill increase by $1 million. Torrey Mesa Research Institute's electricity bill has quadrupled. But Briggs believes the state will resolve the situation. "My belief is that this will not be permitted to cause a major disruption in the economy," Briggs says. Others are less optimistic, issuing ominous portents for California should its energy situation fail to stabilize. Kenneth J. Widder, a venture capitalist with Windamere Venture Partners in San Diego, is particularly concerned about the energy crisis' potential effect on manufacturing, especially with industries that have rigorous sterility protocols. A shutdown of two minutes could result in a two-week delay while the company goes back online, he says. "I think a lot of people haven't understood what it means to have California vulnerable." Unless California fixes its various woes, "it will see a gradual bleeding away of serious high-tech," Greene warns. However, Tom Abate, biotechnology reporter for the San Francisco Chronicle, thinks it might be too late. "All major elements of the California infrastructure are at or past the breaking point," he says. "I believe this is not going to be lost on people who start new companies, and eventually it will take its toll." But at least for the time being, San Diego plans to continue to enjoy its newfound status as a center of science and entrepreneurship in a sun-drenched paradise. Networking Organization Helps Start-ups Get Started No one in San Diego's business arena can talk about the city's transformation into a thriving biotechnology hub without mentioning William W. Otterson. Otterson, who died in November 1999 at age 69 after a 20-year battle with cancer, was the energetic and charismatic leader of the pioneering Connect program at the University of California, San Diego. Connect is a networking organization that helps entrepreneurs get what they need to start a business--be it money, partners, or management.
Connect's founders recruited the former entrepreneur, who served as chief executive officer of Cipher Data Products, to direct the organization almost immediately after its inception in 1985. Otterson and his colleagues realized that high technology could revitalize San Diego, especially with a guiding organization to oil the works by introducing local entrepreneurs, corporations, venture capitalists, attorneys, accountants, and marketers to each other. "He had a wonderful personality and an ability to bring people together," recalls Edward A. Dennis, chairman of UCSD's chemistry and biochemistry department. Otterson was a ubiquitous figure at public meetings, at city hall, and in CEOs' offices. His former colleagues recall him working tirelessly for causes local and national, such as helping to form San Diego's Biotechnology Industry Council (the predecessor to Biocom) and serving on the Southwestern Low-Level Radioactive Waste Commission. "His passing was really noted," says Anthony W. Czarnik, a co-founder of biotech company Illumina and editor of the Journal of Combinatorial Chemistry. "He did something very important for the area." Connect supports itself with dues, grants, and corporate sponsorship, and gets no small amount of respect from the community. Its yearly Most Innovative Product awards ceremony drew more than 1,000 people last year from the local business community, according to Dennis. During his tenure, Otterson grew Connect from a fledgling organization with a staff of two, 30 founding sponsors, and a budget of $100,000 into one with 15 staffers, more than 600 members and sponsors, and a budget of $1.7 million. Connect has since become an international phenomenon. Sweden, Norway, Denmark, and Scotland have set up Connect programs of their own. Houston, Temecula--a town located about an hour's drive north of San Diego--and UC Davis recently created Connect programs too. Connect's current director is entrepreneur Fred G. Cutler, whose credentials include cofounding DigitalStyle Corp., a San Diego-based Web software start-up that merged with Netscape Communications in 1997. Cutler plans to expand the San Diego Connect program. Meanwhile, Otterson's peers will continue to memorialize the man they say helped create San Diego's modern ethos. "The atmosphere that's been set up probably doesn't exist so easily in other communities," Dennis says. "He created the seeds of that." BIOTECH FAMILY TREE
NETWORKING A Good Idea Goes A Long Way, With Help Dan Cook's office is bare. His files, books, and papers are packed away, and all that's left are a computer, a desk, and a chair. He's about to leave his home, Isis Pharmaceuticals, where he's been vice president for chemistry for the past 12 years.
Cook has a wealth of industrial experience. After receiving a Ph.D. in organic chemistry from the University of New Mexico in 1973, he spent more than a decade with Warner-Lambert/Parke Davis in Ann Arbor, Mich., and Eastman Kodak in Philadelphia--heading research in medicinal and antisense oligonucleotide chemistry. He then teamed up with three other scientists to form Isis, a company that would create antisense drugs--snippets of specially designed oligonucleotides that interfere with the action of mRNA involved in the production of disease-causing proteins. They decided to locate their new business in California. "Our main reason was the weather, I think," Cook says. Since then, Isis has become one of San Diego's biotech success stories. Located in Carlsbad, about 20 miles north of San Diego, the company has an antisense drug on the market, Vitravene, that treats cytomegalovirus retinitis, a common eye infection in immune-compromised people. Isis has experienced its share of tumult, however. In late 1999, a promising drug to treat Crohn's disease failed during clinical trials, and the company laid off more than 150 of its 400 employees. But it currently has a cancer drug in Phase III clinical trials and five other drugs in Phase II trials. Cook's new company, called NuMAX Pharmaceuticals, is based on matrix antienzyme (MAX) lead discovery--his method for discovering potential drug candidates, which he believes will significantly shorten drug discovery time. Planning the launch of NuMAX has consumed Cook for the better part of a year. The primary task has been to get funding--no small feat, as it's notoriously difficult to get an audience with a venture capitalist. But Cook has connections, thanks to his membership on the advisory board of the active industrial relations committee at the University of California, San Diego. Recommendations from his chief executive officer colleagues on the board gave him an added measure of clout with the venture capitalists. "I've been in 18 venture capitalists' offices in the past five months," he says. "This has got to be a world's record." That success notwithstanding, he'd still rather collaborate with Biota, he says, because he'll ultimately end up with more ownership of the company and not be dependent upon venture capital. The next day, Cook has good news to report: Biota will do business with him. Now comes the nuts and bolts, such as finding lab space. He wants to stay in Carlsbad, where rent is still less expensive than San Diego. Cook will be negotiating how much of the company he'll ultimately own and whether he'll merge with or even be acquired by Biota. "It's a funny game," Cook observes. "I don't know how well I'm going to play it, but I've got a lot of nerve and energy." ENTREPRENEURSHIP Taking A Chance On Natural Products Gary Eldridge is not your typical biotech chief executive. He's only 30 years old, he doesn't have a Ph.D, and his company's focus--natural products--hasn't been the most popular with drug discoverers in recent years.
Even while he was an analytical chemist at San Diego-based Ligand Pharmaceuticals, Eldridge knew he wanted to be an entrepreneur. He knew that companies are becoming less and less inclined to do in-house screening because it's less expensive to hire another company to do it--outsourcing, as it's known. He also knew that drug discovery firms want access to natural products but that few pursue it because the compounds are often difficult to obtain and characterize. Eldridge recognized that he could provide a service: assembling and characterizing natural product compound libraries. And if he invested in some of the fast, ultrasensitive equipment becoming available, he could do it more quickly and cost-effectively than companies could do it themselves. Eldridge decided to take the plunge. He and his wife, also a scientist, sold their condominium and poured the money into the company. And like many entrepreneurs, he sought out financing from venture capitalists. He didn't have much luck, however. They were reluctant to fund a company headed by a 30-year-old. And their scientific advisers were skeptical of a business based on natural products. "A lot of people said we could not do what we're doing," Eldridge says. "Venture was really cold." So he turned to high-net-worth investors instead. They were more receptive, although the money-gathering process was still grueling. "You have to have a thick skin--people rip you when you're raising money," he says. "But you can't get defensive. You have to answer their questions." With financing in hand, Eldridge began collecting his team. He brought in Lu Zeng, a natural products chemist and former principal research scientist at CombiChem, who patented a multichannel parallel high-throughput liquid chromatography/mass spectrometry device that Sequoia uses to help characterize compounds. He also lured Mark O'Neil-Johnson, a natural products chemist and nuclear magnetic resonance expert, from a long-standing San Francisco area career with Bruker Instruments. Sequoia's equipment now includes one of Bruker's 600-MHz NMR instruments equipped with a cryoprobe that greatly increases sensitivity. The big feather in Sequoia's cap is its partnership with the Missouri Botanical Garden. The garden, a world-renowned botanical center, is providing Sequoia with samples from its 5 million-specimen herbarium to form compound libraries. The company now is screening natural products for Novartis and has six more deals on the table, Eldridge says. "We really are like a division inside a big pharmaceutical company," he explains. "We offer a lot of small biotechs access to what we have without them paying the full ticket. They don't have to hire 15 people--they can collaborate with us." And San Diego, with its plentitude of small biotech companies, is an environment well suited to Sequoia, Eldridge says. "It's the perfect place."
Chemical & Engineering News
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But the most close-knit support groups and greatest weather in the world wouldn't have accomplished much without some major intellectual muscle to back them up. What underpins the San Diego biotech phenomenon is the cluster of world-class research institutions that lie within a stone's throw of each other: Scripps Research Institute; the University of California, San Diego; and the Salk Institute. Not only is their research first rate, but the scientists and professors there are unusually business-savvy, spawning start-ups hand over fist.
