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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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May 18, 2009

San Francisco Biotech: Holding Up, or Not?

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Posted by Derek

I've got a piece coming up today at The Atlantic Monthly's business site on the state of the biotech industry out in the Bay Area. Since the Genentech takeover fight broke out, a persistent theme in the comments here (and in e-mail that I've received) has been how well the industry is holding up out there. Opinions range from "basically fine" (a minority, to be sure), to "incipient disaster" (also a minority, but a loud one). The consensus view is that there may well be room to worry.

So let's start the discussion explicitly (here as well as over at The Atlantic. How healthy is the original biotech cluster? And how many of its current problems are due to secular reasons (the general economy, the general state of the drug industry), and how many are home-grown? I'd be very interested to hear from people out there, although I guess it'll be mostly us Eastern types for the next few hours here. . .

Comments (24) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


1. milkshake on May 18, 2009 9:31 AM writes...

not very. The problems are industry-wide. Smaller and mid-size companies are more vulnerable to acquisition-related layoffs, not mentioning the normal failure. South of San Francisco and San Diego is where many have been located so thats where the pain is felt most acutely. This process has been going on since early 2000s and it is accelerating - even back then when I worked there, I was astounded by the large excess of unused lab space in SSF, whole buildings standing empty, etc.

I hear that Boston area is less affected by the industry contraction but I think thats only temporary.

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2. anon on May 18, 2009 9:53 AM writes...

There's certainly no shortage of good drug targets or undertreated diseases; does anyone have a feeling this slump will ease over time? The patient is waiting.

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3. anoII on May 18, 2009 11:09 AM writes...

Unfortunately, the VCs seem less interested in the patient than in the patent, and even then, interest in investing in start-ups has waned quite a bit. The big VCs are interested in funding late-stage companies. Well, late-stage companies don't need VCs. The problem in the SF Bay area is there aren't very many middle-stage companies, never mind late-stage ones. The other problem in the SF Bay area (I don't know about San Diego) is that there are enough persons looking for work in biotech long enough that they have started to move away from biotech. It won't take long before this becomes a self-fulfilling prophesy. One need only look from SSF down the peninsula to Palo Alto to see the husks of start-ups gone bust. There are all too many of them, and they've grown unfortunately plentiful during the past year. It may be a minority view, but things aren't looking so good at Biotech Central.

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4. milkshake on May 18, 2009 11:38 AM writes...

The flip side was that in the past the VC capital was rather easy to get and too many people in academia got greedy and started biotech companies on flimsiest premise. The salesmanship that touted the 'proprietary technology platform and cutting-edge research' was astounding. If the company did well it got bought by big pharma and the founders became rich. If the company failed, the founders still got money for their trouble and the publicity was mostly good. They could always start another one and go at it again, hoping that something will stick.

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5. emjeff on May 18, 2009 11:42 AM writes...

Don't worry California. Your savior Obama will make everything better by destroying every last chance of profitability in drug development.

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6. TDub on May 18, 2009 11:42 AM writes...

Another sad, sad story you didn't mention is RTP. GSK has spearheaded the movement towards ditching pre-clinical R&D and buying up late stage IP.

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7. E on May 18, 2009 12:09 PM writes...

I work in the bay, and my company is still hiring. We're a mid-cap company doing fine. Yes the economy is affecting us with spending & the obvious stock drop, but at least the democrats support scientific research :)
I think this economy flushes out those with half baked ideas, and the strong who are making a real difference survive.

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8. AnoII on May 18, 2009 12:41 PM writes...


I can show you a bunch of companies with very viable programs (of which at least 3 have gotten past EOP2 meetings with FDA) who are either on the verge of folding or are already gone in the SF Bay area. This is no more a political issue than saving Silicon Valley during the late 1980s was. Democrats get sick, so do Republicans (even if some of them don't vote as though they did). The reality is that something quite valuable in the US economy is on the verge of being lost. Once gone, it will be mighty hard to reconstruct. The heavy manufacturing hub known as "Detroit" is gone--wonder why everyone cared so much about it? It wasn't the jobs alone, it was the capability. Where do you think tanks and drones and howitzers come from? Can one be a superpower without that manufacturing capability? Right now, health care is almost 18% of our GDP. Drugs are easily 10 percent of that--maybe more. Biotech is not a small part of that 10 percent. Put another way, drugs make up $1 for every $50 in the US economy. Biotech is a good chunk of that $1, and biotech keeps many an academic medical center (read: medical school) alive. Bottom line: there are lots of losers if the SF biotech hub goes bust.

Oh, and for those who think Roche is too smart to hurt Genentech, try telling that to all the ex-Syntexers in the SF Bay area. It's amazingly hard to find any of them who are particularly partial to Roche after they've spent much time with the company. Not my opinion, my observation.

At for RTP, I just don't know it as well. Are there many start-ups there? It isn't just having a center, per se, but the start-ups which is key. In the SF Bay area, they are disappearing--fast. That's the problem. Without the start-up know as Genentech, there is no Genentech. Ditto for Gilead.

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9. Chemjobber on May 18, 2009 12:43 PM writes...

I can't measure the San Diego biotech economy, but the job market (as measured by the number of ads in the local ACS section newsletter) is poor and flat, especially compared to the peak time of ~May 2008 or so.

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10. Anonymous on May 18, 2009 12:55 PM writes...

Also, there's this:

"May 15 (Bloomberg) -- A once-vacant rail yard 2 miles from downtown San Francisco is coming to life as a center of biotechnology and transforming San Francisco’s economy beyond tourism and financial services.

San Francisco is too dependent on those industries, says Mayor Gavin Newsom, who’s using a tax cut and other incentives to woo businesses with growth potential. He’s especially targeting biotechnology, which has a foothold in the city’s emerging biomedical district known as Mission Bay.

Pfizer Inc., the world’s largest drugmaker, will open a five-story biotechnology headquarters in Mission Bay next year. At a so-called biotech hotel, where start-ups rent space, a scientist studies tissue samples for Groningen, Netherlands- based Brains On-Line BV. Partners at Versant Ventures and other venture capital firms on the hotel’s top floor can look out at the industry they’re funding.

“This area is going to pop,” said Gail Maderis, chief executive officer of FivePrime Therapeutics, the first biotechnology company to move to Mission Bay. “We have pharma and biotech companies coming through all the time and they look and see Mission Bay growing. This will be the largest life sciences hub west of the Rockies.”

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11. JC on May 18, 2009 2:27 PM writes...

Quite a few new lab ready buildings still being constructed in SSF.

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12. pete on May 18, 2009 4:41 PM writes...

So long as Biotech is still kickin, I feel the SF Bay will remain a big part of the story. The urge to innovate and the available Biotech talent pool around SF is considerable. Also, my experience tells me a lot of the best foreign Biotech talent is more easily be drawn to SF than to many other regions in the US, despite the punishing cost of home ownership.

So yes, it's a different scene now that many mid-size Biotech's have disappeared from the map (PDL, Tularik, Abgenix, Sugen, ...). But I don't know that SF is unique in that regard.

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13. Paul S on May 18, 2009 4:53 PM writes...

I work as a consultant in the Bay area biotech industry, and so far I'd say things are slow, but far from dire. We can get some raw numbers from There we find that Silicon Valley received 38.6% of venture capital investment in the last quarter - three times as much as the next largest region (New England).

Of that, 18.1% went to biotech firms - coming in a very close second place to software investment.

So at least in terms of venture cap funding I'd say the Bay area is going strong. And I can tell you that my contracting business isn't hurting either.

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14. Cycle Boy on May 18, 2009 6:44 PM writes...

So these things go in cycles. In the early 90's, 2 guys and a cage of mice could raise serious money. Then came all kinds of different business models (tool kits, diagnostic, JiffyHeart device startups of the mid-90s, nanotech/nanomedicine). As each fad ramped up, it attracted interest and money. As it faded (as fads will do), SF Bay researchers had to shift to different skill sets. The key to the Bay area's staying power is that we prize innovative thinking and the ability to figure out how to make new ideas work. Among the folks that I speak with, there is caution about today, but general optimism about the future.

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15. Druggie on May 18, 2009 6:53 PM writes...

This could help.

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16. Elmo on May 19, 2009 1:13 AM writes...

I work for Roche in Palo Alto. My job ends in August. What people don't seem to know is that Roche has agreed to not layoff Genentech employees until 2011. That is when the main integration will take place. Roche has replaced CEO Art with their own Finance exec (not a scientist) to mastermind the big event.

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17. Ryan on May 19, 2009 6:33 AM writes...

As long as research employees continue to have difficulty finding reasonably pricing housing along coastal California metro areas to raise their young families, it's major push factor to move out of San Diego & SF.

Amgen in the 80s left Los Angeles County for Thousand Oaks, CA in Ventura County because it had relatively inexpensive real estate, low crime and good area public schools. Now I wonder if it was a start-up now, would the original founders of moved to T.O.?

Now I think they'd head for Denver or Boulder rather than SF or SD if they were starting over totally.

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18. AnoII on May 19, 2009 11:15 AM writes...


Prices in the SF Bay area are about as low as they've been since at least the mid-1990s. Of course, we can't offer the blizzards Denver and Salt Lake City can, and SF Bay has all those cultural distractions which takes one's mind out of the labs, never mind universities like UC Berkeley, Stanford, and UCSF, and the local schools (think Cupertino and Palo Alto) are as good as those anywhere. Gunn High is still among the top 5 in the nation, and the Burlingame system's still strong too. That's part of the reason biotechers haven't left the Bay area already. But absent the jobs, they will soon enough, I'm sure. After all, if it was just being in a low-cost area with lots of support for families, how do you explain PDL's perpetual problem of recruiting to Minneapolis? Or Abbott/Takeda/Astellas/Baxter having the same problem in Chicago? Chicago isn't TO back in the 80s, but it's hardly the west coast, either.

As for Genentechers being kept until 2011, maybe that's what Roche is spinning in Palo Alto. The word amongst the both in South City is that they start getting their notices this summer. It may not be one of those "layoffs will be announced on" situations, so things will happen more gradually, as clinical departments are moved from Nutley to California. It IS happening all the same. Roche has bills to pay, including that for the merger (er, acquisition), and laying off Genentechers is a big part of the justification. Swiss bankers wait two years for a return on investment? Are you kidding? I'm surprised they're waiting for the summer.

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19. Ryan on May 20, 2009 8:11 AM writes...

What's one pull factor for possible Denver start-ups?

The Anschutz Medical Campus and adjacent research parks.

I cannot speak for anyone else, however I have many friends who attended Cal, UCSD, UCSF now in their 30s. They each had multiple offers from Stanford, UCSF, and UCSD for high level medical research jobs. In the end, they most left the state of California for a different set of opportunities in Denver or Boulder.

Have you ever tried to get day care full-time for a child while at UCSF as a graduate student? 40-45k a year easy.

Housing Prices are out of wrack and have been since at least 1998 in most of coastal California, if one looks at Housing Price to Earnings ratios. Prices simply have to come down statewide, or people will vote with their feet. Unless some magical broad based income growth occurs statewide soon? From where?

The same amount of money goes farther outside of the current major Biotech clusters of SF, SD than it does in most of California currently. Look at where the population growth is in the West, it's mostly in the inter-mountain Western States - Colorado, Utah, Arizona, New Mexico, Nevada, Idaho - not as much in California.

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20. AnoII on May 20, 2009 10:42 AM writes...


You may well be right. On the other hand, I get so many calls from recruiters every day for those positions in Chicago that go unfilled. Abbott, Takeda, Astellas, TAP, and Baxter. I've tried to convince mentees to go to Chicago. They have no interest in doing so. I know what it was like to recruit to Minneapolis--challenging doesn't begin to describe the issues involved. There is a need for critical mass. Don't think so? Ask all those happy ICOSers in Seattle and see what you get for responses.

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21. AnoII on May 20, 2009 10:43 AM writes...

Isn't that why Sirna left Colorado for the Bay area, and why only after it had moved Merck bought it?

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22. Anonymous on May 21, 2009 12:32 PM writes...

VCs and upper management of my company seem to only care about future profit. Their product and their employees.. not so much. Our product has revolutionary potential, but bad management is getting in the way of talented employees. The VCs and CEO don't care about quality, regulatory adherence or worker morale. They only want to cash out in the end.

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23. SF on July 31, 2009 2:13 PM writes...

Historical business models by which product candidates became businesses need to be, and not just a little, edited so that while adhering to all of today's international human rights conventions as well as our own government's regulations, we can achieve similar profitability. Prior product candidates success (success for patient populations as well as 'Wall Street')had alot to do with the low cost of carrying on agressive pre-clinical testing in ways that we are not allowed to do so today.

I worked as IR for a company that used thalidomide to treat AIDS/HIV related indications, including cachexia, and as a result of that process I learned the $$$ value to the company and its shareholders of that drug at one point having been tested outside of the USA in a fashion that violates not only current -year 2009 - international human rights conventions but now also our own Federal standards. If that pre-clinical research had not been done in ways that today amount to gross violations I don't know if the company that I worked for could have afforded to bring it through the FDA Approval Process and to market.

After working for that company and several others I made enough money to go to grad school and onto work in post conflict/less developed/emerging market countries lobbying for those countries to ratify and actually implement the 12 core international human rights conventions; but, the problem with doing so was that doing so would retard those economies abilities to develop financially.

Short of Long: how can all of the involved players in this process work to increase the number of Bay Area product candidates that make it through the USFDA Approval Process.

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24. anonomous on September 2, 2009 11:40 PM writes...

Layoffs at Genentech Research and Early Development have begun. So...forget about 2011....and that party line about Genentech being an independent site.

To the original post's point however, "is the Bay Area still a viable biotech hub"...these changes in the big companies will surely drive some of the talented hearts and minds out the door to keep the dream alive. This is still the best place on the planet to find and recruit talent and raise $$.

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