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Industry Profile: Growing pains for Washington’s biotech industry |
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Written On: November/December 2006 |
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Written By: by Paul Schlienz |
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Washington’s economy has a new kid on the block. Long known for airplanes, software, timber and agriculture, the state now boasts a thriving biotechnology industry.
Only seeing commercial application since the 1970s, biotechnology uses genetic engineering to create new medications. Since then, the Seattle area has become one of the epicenters of the industry.
It was only natural that a biotech industry would develop in the Seattle area, thanks to an unusually strong medical research base.
"We were strong in the biomedical field before anyone had probably even coined the term 'biotech,'" said Pamela Love, of the Washington Biotechnology and Biomedical Association.
Seattle’s greatest research strength is the University of Washington, whose medical school receives more National Institute of Health grants than any other public university in the United States. Among all institutions of higher learning, only the privately owned Johns Hopkins University, in Baltimore, receives more NIH grants than the UW.
In addition to the UW, Seattle is also home to the Fred Hutchinson Cancer Research Center, the nation’s premier institution for cancer research; Batelle’s Pacific Northwest National Laboratory; and the Benaroya Research Institute at Virginia Mason Hospital. Beyond Seattle, both Washington State University and Eastern Washington University have also made significant contributions to biotech research.
"You put all of those institutions together and we’re as strong in research as Massachusetts or the San Francisco bay area," commented Jack Faris, WBBA president. "We have a huge base to grow from."
Research goes commercial
Commercial biotech companies began emerging out of research that had its roots in Washington’s research institutions. The 1981 founding of Immunex, in Bothell, signaled the beginning of biotech era in the Seattle area. Following Immunex’s lead, more homegrown companies — including Seattle’s Cell Therapeutics, Corixia, Dandeon, Zymogenetics, and Bothell’s Sonus Pharmaceuticals, Icos, and Seattle Genetics — emerged, creating an entirely new industry.
Since then, Washington’s biotech sector has grown by leaps and bounds. According to a 2006 Batelle study, an estimated 21,560 Washington residents now work in biotech laboratories. In addition, there are numerous other biotechnology professionals, not counted by the study, in the state’s universities and hospitals.
Most importantly, biotech’s greatest promise — the creation of new and more effective medications — is starting to be realized. Immunex produced Leukine® for cancer treatment; the multiple sclerosis drug, Noventrone®; and Enbrel®, a medication for rheumatoid diseases.
The biotech industry is an unusually challenging business environment. New drugs must be developed and tested before being submitted to the Food and Drug Administration for approval — a lengthy process. Because of this, many biotech companies have yet to put products on the market. This has made it difficult for more than one biotech startup to survive on its own.
"We’ve been lucky," observed Pamela Dull, director of investor relations at Sonus Pharmaceuticals, established in 1991, which is developing TOCOSOL® Camptothecin, a cancer drug in the later stages of its FDA trials. "We’ve been able to finance our way to this point. Some other companies aren’t so lucky. Hopefully, smaller companies like ours will be able to move ahead and get products to the market."
If biotech startups run out of investment capital before reaching profitability, or there’s a fatal flaw in their technology, they fail. If they survive and are successful, however, there are two possible paths they may then take. One option is for a company to go public and thrive on its own. The other successful outcome for a biotech startup is to be acquired by a larger, more established biotech company.
"We shouldn’t be thinking about being acquired as being a bad thing," Faris said. "Mergers are a natural phenomenon and can represent a very successful outcome. There’s a lot that’s positive to mergers."
Seattle biotech’s most famous merger was the 2002 acquisition of Immunex by Amgen, a larger California-based biotech company, for $10 billion. Although the Immunex name disappeared in the acquisition, this merger was anything but negative for the Seattle economy.
Although Amgen cut 400 Seattle jobs, things did not remain bleak for long. Soon, the company was in an expansion mode, building a large and spectacular campus along Elliot Bay, which became one of the Seattle waterfront’s most prominent landmarks. Amgen’s Seattle campus — rapidly becoming the company’s research center — and its campus in Bothell employed 950 workers in early 2006. By the end of the year, Amgen expects to hire 150 new workers in the Seattle area.
More mergers followed the marriage of Amgen and Immunex. In 2005, Corixia was acquired by GlaxoSmithKline; and this year, Corus Pharma was acquired Gilead Sciences.
Currently, the $2.1 billion merger of Icos with pharmaceutical giant Eli Lilly is the talk of the town. Although Lilly has warned of job cuts after finalization of the Icos deal in 2007, the Amgen experience strongly suggests that there’s a real possibility of strong growth following such a restructuring.
Building the future
There is growing evidence that state government understands the importance of biotech. During the 2005 legislative session, the Life Sciences Discovery Fund was created.
The fund was created to promote life sciences research, improve Washington’s competitiveness in biotech, and to improve the quality and delivery of health care in Washington.
Fueled in part by Washington’s receipts from the 1999 tobacco lawsuit settlement, the fund will be able to deploy $350 million over ten years in support of research competitiveness.
In addition, the biotech industry is pushing for further measures, including lowering the B&O tax rate levied on biotech businesses, designed to keep Washington attractive to the industry.
As biotech grows in Washington, one worrisome cloud on the horizon is the fact that the industry is importing a disproportionate share of its talent from out of state. Ironically, in spite of its excellent base of research institutions, Washington lags behind in producing science and engineering graduates.
"In the long term, everything starts with doing everything we can possibly do to improve the quality of science learning at all levels, starting with kids at the earliest stages of school," Faris said. "We also need to do more to help high school and college students understand the opportunities in biotech."
Even with the unease over mergers, the difficulties faced by companies in staying afloat while they spend years developing and testing their products, and concerns about workforce development, the biotech industry is thriving in Washington. In Seattle, it has even changed the face of the city with the large Amgen campus. In addition, a City of Seattle initiative is well under way to transform the neglected, largely industrial South Lake Union neighborhood into a biotechnology center linked to downtown by a streetcar line.
"Generally, there’s reason for great optimism, but we’re going to have to figure out how we’re going to invest in research, improve our commercialized technology, and do everything we can to help biotech enterprises succeed," Faris concluded.
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