San Diego biotechnology is a giant industry populated by midgets: about 500 mostly Lilliputian biotech companies that employ most of the trained bioscience professionals. This bio-feast was too attractive not to attract the attention of some Gullivers: big pharmaceutical companies have turned to San Diego as a research center. These big pharmas, including Pfizer, Novartis, Dow, Johnson & Johnson and Bristol-Myers Squibb, all have a physical presence in San Diego. The Gullivers have been hiring at such a rapid clip they already are hiring 40 percent of biotech employees, says Jeff Prekker, district manager for Yoh Scientific, a company that places contract and permanent employees in the bioscience industry.

In a few years, say Prekker and other industry observers, the big pharmas may hire more local talent than the rest of San Diego’s biotech industry combined. For example, Pfizer now employs about 1,000 people on its La Jolla campus. Pfizer is a prime example of how intertwined big pharma and biotech can become. Pfizer came here in 2000 when it bought Warner-Lambert, which in turn had bought Agouron Pharmaceuticals in 1999 for nearly $2 billion. (Pfizer declined to comment, because it is awaiting approval of its pending merger with Pharmacia.)

Here is the story of this evolving relationship, as San Diego’s life science scene begins to reach parity with the Bay Area and Boston.

Money And People

The local biotech industry’s dynamism is one big reason for big pharmas to expand here. While telecom and other tech sectors have cratered, San Diego’s life sciences community keeps expanding. In the last two years, more than $1.5 billion has been invested in local life science companies. Nearly two-thirds of the venture capital money raised by companies in San Diego County went to biotech and medical device companies.

Last year, the biotechs upped their payrolls by 21 percent, adding about 5,600 jobs, says Scott Lynch, sales and marketing manager for Alexander X, a publisher of bioscience and high-tech directories. That pushes the total to more than 25,000 in the county. Lynch says he has seen interest soar in Alexander X’s bioscience directory for San Diego, overtaking demand for its high-tech directory. The trend started a few years ago, when recruiters started asking specifically for the bioscience directory, without the high-tech directory.

In many respects, the trend validates the community’s decision to support the life sciences industry. Big pharma’s presence can only draw more attention to San Diego as a major biotechnology center. As they hire, often bringing in new people from outside San Diego, the local biotech talent pool is enriched. That’s been the case ever since the days of San Diego’s first biotech company, Hybritech Inc.

Competition

Biotechs also benefit from being close to potential research partners. Wise biotechs don’t just look at big pharmas as a piggy bank; they try to help influence and learn from their experience in marketing medicines. But the big budgets of big pharmas can inadvertently play havoc with cost-conscious biotechs.

“There’s more competition for the same people,” says biotech veteran David Hale, chief executive officer of CancerVax, a Carlsbad-based biotech company.

“They can offer the stability of a large company,” says Gerry Yakatan, chief executive of La Jolla’s Avanir Pharmaceuticals.

Hale and Yakatan don’t dispute the beneficial effect of San Diego’s transformation into a new West Coast hub for big pharma: but they caution their peers that they’ll face new challenges.

A Marriage Of Heaven And ...

Big pharmas and biotechs have their stereotypes about each other. Big pharmas are slow, lumbering, but frighteningly powerful dinosaurs that can rearrange the landscape with a sweep of their tails. Biotechs are brilliant, but unpredictable and at times a bit flaky with an unnerving habit of spending all their money and going out of business. They’re in love with technology, but can be slow to understand that technology is just a means to an end: products.

At bottom, the relationship is asymmetric: big pharmas with their huge cash reserves have been able to get along without biotech, but biotech needs big pharma. That’s especially true since the tech crash, which made it very tough to raise money in public offerings. Meanwhile, venture capitalists are busy just keeping their portfolio companies funded.

Even having a product ready for clinical trials, or actually in clinical trials, doesn’t guarantee a respectful hearing from the big boys. That was the unpleasant experience of William H. Rastetter, chief executive of Idec Pharmaceuticals Corp. Rastetter discussed Idec’s fruitless mid-90s search for a big pharma partner at March’s CalBioSummit in Downtown San Diego.

Idec’s bright idea was Rituxan, a monoclonal antibody targeted at certain white blood cells called B cells that become cancerous in patients with non-Hodgkin’s lymphoma. Part of Rastetter’s problem was timing: in the early to mid-90s, monoclonal antibodies as therapeutics were in pharmaceutical Siberia. Promising products such as Centoxin, a monoclonal to prevent sepsis, had flopped. The last thing big pharma wanted to hear was yet another chirpy biotech announcing the next new big thing. “We announced this great little antibody for lymphoma, and we went around the world to large pharma,” Rastetter says.

The response:

“We heard, ‘it’s not colon cancer, breast cancer or lung cancer or prostate cancer, we’re not interested. Lymphoma is perfectly managed by conventional chemotherapy, by the way it’s an orphan disease and (monoclonals) won’t work anyhow,’” Rastetter recalls.

But at nearly the last minute, with Idec about out of cash, the biotech struck a historic partnership with Genentech, a South San Francisco-based biotech. Genentech helped with cash and manufacturing for Rituxan as it progressed through clinical trials, In return, Genentech gets a cut on Rituxan’s profits. Today, more than $1 billion worth of Rituxan is sold a year.

“I’m very happy to say it’s not necessary in some cases to do large pharma partnerships in order to survive,” Rastetter says. Today, the environment is more favorable to biotech in dealing with big pharma, says Stuart Collinson, a partner in the venture capital firm Forward Ventures.

Growing Respect

Collinson knows what it’s like in both camps. Collinson is the former chairman, chief executive and president of San Diego’s Aurora Biosciences Corp., which was purchased in 2001 by Vertex Pharmaceuticals of Cambridge, Mass. Before Aurora, Collinson had been a senior executive in GlaxoWellcome plc, now GlaxoSmithKline plc, and Bexter International Inc.

Collinson points to Aurora as an example of how biotech companies and big pharmas can work together. Aurora’s drug discovery technology was the basis of partnerships with big pharmas Pfizer, Merck, Bristol-Myers Squibb, Eli Lilly & Co. and Warner-Lambert, now part of Pfizer.

Amylin Pharmaceuticals is both a horror and a success story in dealing with big pharma. The La Jolla-based company has been developing therapeutics for years to treat diabetes and related metabolic disorders.

Amylin had what seemed like the dream alliance with Johnson & Johnson to develop Symlin, a drug that was supposed to help control blood glucose levels in partnership with insulin. But developing the drug was treacherous, and after a particularly nasty setback, J&J canceled its partnership. Amylin stock plunged, and in 1998, the company laid off three-fourths of its employees. Today, Amylin has a new beau, Eli Lilly & Co. In September, Lilly agreed to pay up to $325 million to Amylin in a partnership to develop another diabetes drug, exenatide. (It’s also still developing Symlin). Exenatide is the synthetic version of a compound found in Gila monster venom.

Like J&J, Lilly has a strong interest in diabetes treatments. Lilly also is no stranger to San Diego biotech, as it bought Hybritech in 1986 for about $400 million. It also has a partnership with Carlsbad’s Isis Pharmaceuticals to develop anti-cancer drugs.

“The need to fill their pipeline is increasingly urgent,” Collinson says of the big pharmas. “They recognize and respect what resources San Diego biotechnology companies have to offer.”

Ivor Royston, a biotech pioneer and another member of Forward Ventures, says that reputation helps the firm get the attention of local big pharmas for their companies — especially with those that have a presence in San Diego. “I can call the guys at Pfizer now that I’ve gotten to know them. They pick up the phone and I can discuss some of our portfolio companies,” Royston says. “In fact, in some cases they’ve gotten very interested. Having them here makes it much easier.”

Here To Stay

Hale says San Diego’s transformation into a big pharma hot spot is a logical progression of the region’s growth. First came the research institutes at UCSD, the Salk Institute and Scripps Clinic. Then, the numerous biotech companies, many of them spin-offs of the institutions. Now, with a huge number of research institutions, biotech companies and thousands of qualified biotech employees, the San Diego area has all the elements that would make it attractive to larger pharmaceutical companies, Hale says.

Prekker of Yoh Scientific says these companies like to hire locally, but can’t find all the talent they need here. This means the big pharmas must bring in people from elsewhere. When they do so — people being notably reluctant to leave the land of sun and fish tacos — San Diego’s biotech talent pool grows. Since big pharma is now firmly entrenched in San Diego, biotech executives Hale and Yakatan say they’re determined to derive the benefits and reduce the pains. Both speak in much the same terms: emphasize the creativity and freedom a biotech job gives top and middle-ranking executives and scientists, as compared to the more regimented life of a big pharma type.

Hale says even stock options, now in some disfavor, have their pull. “At a large pharmaceutical company, only the upper management generally has access to stock options,” Hale says. “At a biotech company, options are open to more people.”

“It’s a struggle,” Yakatan says. “They can offer things that we can’t. What we offer is the chance to make a difference.”

The attractiveness of big pharma jobs can even be turned into a recruitment tool in hiring employees from outside of San Diego. That’s because these employees, whose skills are specialized, often worry what will happen to them if the job doesn’t work out. With some of the biggest pharmaceutical firms in San Diego, Yakatan says people are more willing to take a chance, confident they’ll have other opportunities.

Yakatan says he also tries to think about what’s best for the entire region. “For San Diego, there’s no question that having these companies here is positive.” And for the biotechs, well, they’ve got to keep being nimble and smart to keep ahead of Gulliver.