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This grim situation has scared off many investors and venture capitalists. The amount of venture money flowing into U.S. startup companies has dramatically increased in recent years, says Robert M. Jaffe, president of Sorrento Ventures, a San Diego-based venture capital fund. However, the amount going to biotech companies has remained about the same, from $700 million to $800 million a year, Jaffe noted at a recent meeting of the Biotechnology InCyte group in La Jolla.
But don’t lay out crepe for biotechnology just yet: while venture groups and public markets shy away from the industry, large pharmaceutical companies are moving in. Big time. And San Diego research centers and biotech companies have seized prime intellectual real estate these companies need.
To understand why this is so, it’s necessary to look at the plight of "big pharma." These firms are cash-rich, but increasingly product-poor as their patents expire. Generic drugs are far less profitable than those protected by patents. And the diseases confronting an aging population, such as Alzheimers and cancer, are far more difficult to treat than infectious diseases. The question is, how to quickly find new drugs to address these diseases?
Biotechnology has the answer, these companies believe, in genomics. This hot field seeks to correlate specific gene patterns with their effect on a living creature. With reason, genomics has been called the new gold rush in biotechnology. Since genes form the blueprint of life, understanding that blueprint will allow scientists to understand how diseases caused or influenced by genes happen at the source. Armed with that knowledge, scientists can design drugs to counteract the disease, or repair the function of defective genes with good genes.
It’s a beguilingly simple concept, but tricky in practice. There are close to 100,000 genes in the human body. Sometimes, a mutation in a single gene may cause a disease. Sickle-cell anemia and cystic fibrosis are good examples. But more typically, genes work together, and certain combinations of genes may produce so-called "polygenic" diseases. Finding a needle in a haystack is simple compared to identifying the cause of these diseases. Big pharmaceutical companies, used to the trial-and-error method of drug discovery, haven't been able to keep pace with nimble biotech startups and research institutes.
Those reasons led Novartis, the Swiss pharmaceutical giant, to announce in April that it would spend $250 million over 10 years to form the Novartis Institute for Functional Genomics in La Jolla. The institute will be located next to The Scripps Research Institute. Novartis says the area "is considered to be among the most creative biomedical research environments in the world."
"The collaboration with a top-quality functional genomics institute will provide our researchers with a major competitive advantage," says Dr. Daniel Vasella, president of Novartis. "Through close interaction with our other external partners, such as The Scripps Research Institute (TSRI) and other academic groups, we will have the ability to work simultaneously on a large number of known genetic links, thereby accelerating the pace of our discovery efforts."
Functional genomics, as its name implies, goes further than looking for links between certain diseases and gene patterns. Its goal is to find out exactly how a certain gene set interacts with the body. This means going back to the laboratory and doing basic research in many fields. The Novartis Institute, for example, will house about 20 labs devoted to "molecular epidemiology, molecular and structural biology, bioinformatics, combinatorial chemistry, high-throughput screening, proteomics, model organisms (including transgenics) and differential expression."
That's the intellectual real estate Scripps and other San Diego companies have for sale. Moreover, the concentration of scientists from many different disciplines in and around Torrey Pines Mesa make it easy to cross-fertilize ideas. A programmer at the San Diego Supercomputer Center may have an insight that speeds up the search for disease-related genetic patterns, for example.
Computers, in fact, have become a major weapon of drug discovery. Agouron makes extensive use of computers to solve, the structure of complicated molecules such as HIV protease, a substance used by the HIV virus to replicate and cause AIDS. That knowledge in turn made it possible for Agouron to design a protease inhibitor, Viracept, that single-handedly made Agouron profitable. Such expertise led to the recent purchase of two local companies with expertise in computer-aided biology (the so-called "dry-lab" approach).
Here are two examples:
- In November, 1997, Arris Pharmaceutical Corp. of South San Francisco announced it would acquire all outstanding shares of genomics pioneer Sequana Therapeutics in a stock-swap valued at $166 million. The deal was completed on Jan. 7.
- In February, 1998, Pharmaceopeia Inc. of Princeton, New Jersey, announced its own stock swap acquisition of Molecular Simulations Inc., a deal worth about $140 million. Molecular Simulations makes modeling software that imitates molecular interactions.
There's another way of gauging interest in San Diego biotechnology: attend any of the biotech forums sponsored by UCSD Connect, BioCom San Diego or other local biotech groups. You'll see investment bankers, big pharma representatives and other professionals from as far away as Japan, Sweden and Germany.
Even outside of the genomics field, local companies such as Idec Pharmaceuticals are gaining national attention. Idec teamed up with Genentech to make Rituxan, a drug for non-Hodgkins lymphoma. Rituxan is a monoclonal antibody, a class of drugs given up for dead years ago after early stage monoclonals flopped as the so-called "magic bullets" against cancer. These antibodies were made from mice, and were cleared from the human body by the immune system too fast to do any good. Idec modified these monoclonals to make them like antibodies made by primates, the class of animals to which humans belong. The theory was that these "primatized" monoclonals would not seem as foreign to the body, and stay active long enough to attack their targets. The theory worked, and Rituxan was approved by the Food and Drug Administration last November. Investors have taken notice: three years ago, Idec stock sold for about $4 a share. In late May of this year, Idec sold for more than $30 a share.
Idec investors learned the lesson that short-term pain may produce long-term gains. It’s a lesson worth keeping in mind about biotech in San Diego, across the country, and worldwide.
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