San Diego Business Journal

Biotech: Trend of Buyouts Are Likely to Continue in Industry

San Diego biotech leaders are looking wide-eyed toward 2000.

Local experts predict new strategies on the horizon, such as developing more local collaborations to pool instead of compete for research dollars.

San Diegans also will see a continuation of the buyout and merger flurry that has been sweeping across all industry lines, but hit San Diego's biotechs like never before in 1999.

For the many local firms with products in Phase III trials, the last of three stages required by the Food and Drug Administration to apply for approval, the next few years will spell either commercial success or failure.

The three biotech industry respondents to the 10th Annual Deloitte & Touche/San Diego Business Journal Economic Outlook Survey were split on the industry's economic future.

Asked to compare prospects for this year with 1999, one said it would be "better," one said "about the same" and another one said "worse."

Though statistically insignificant, the three opinions seemed to represent the state of the industry revealed by interviews with local experts.

"I think we will see some real progress in terms of companies introducing new products," said Joseph Panetta, president and chief executive of Biocom, San Diego's life sciences industry association.

About 50 products made it into late-stage clinical trials, he said. That's a big accomplishment considering only about 100 out of 10,000 experimental drugs meet the FDA's rigorous safety and efficacy standards.

Big Challenges Ahead

To get a drug approved and recoup some $400 million in research and developmental costs is even more challenging.

Last year, Ligand Pharmaceuticals celebrated governmental approval of two drugs, a lymphoma drug called Ontak and an AIDS-related Kaposi's sarcoma drug called Panretin.

On Dec. 13, the FDA's oncologic drug advisory committee recommended approval for Ligand's cutaneous T-cell lymphoma drug Targretin for patients with advanced cancer.

Other FDA approvals in 1999 included Cypress Bioscience Inc.'s rheumatoid drug Prosorba Column and Dura Pharmaceuticals (developed by Bristol-Myers Squibb Co.) antibiotic called Maxipime.

But 1999 was also a year of great disappointment for many local biotechs.

Neurocrine Biosciences Inc. announced early last year it will no longer pursue the development of its Alzheimer's drug.

La Jolla Pharmaceutical Inc. shares dropped 51 percent after it announced it halted tests on its lupus drug, dubbed LJP 394, on May 12.

Only days later, Immune Response Corp. announced it stopped a 2,500-patient late-stage anti-HIV trial, because "differences in clinical endpoints were not observed."

Avanir Pharmaceuticals had a turbulent year, marked by lawsuits, layoffs and mixed news from the FDA.

The good news came in November when the FDA told Avanir the clinical data on its oral herpes drugs, docosanol, was sufficient to be considered for approval without a prescription.

The firm is still awaiting the FDA's verdict.

Isis Pharmaceuticals Inc.'s shares took a dive Dec. 15 following news that its experimental drug for Crohn's disease flopped in clinical trials.

For other biotechs, 1999 marked the end of independence. On the long list of 1999 buyouts or mergers are San Diego-based Agouron Pharmaceuticals Inc., now part of New Jersey-based Warner-Lambert Co.; DepoTech Corp., bought by British Skyepharma PLC; Sibia Neurosciences Inc., bought by New-Jersey-based Merck & Co. Inc.; Molecular Biosystems Inc., bought by Princeton, N.J.-based Palatin Technologies; and Cypros Pharmaceutical Corp., bought by RiboGene in Hayward.

Industry experts said the trend of bigger biotechs or pharmaceutical firms buying smaller ones will continue.

"Rather than investing hundreds of millions of dollars themselves, it's more lucrative (for pharmaceutical firms) to shop around for (smaller biotech firms) that are starved for cash," Panetta said.

Tough Times

The last couple years have been especially tough for biotech firms. Turned off by years of drug development and testing with no monetary return, many investors fled to the high-tech stocks that showed more promise of quicker and higher returns.

But Panetta and Bud Leedom, publisher of the San Diego Stock Report, say investors with money to spend are slowly returning.

"We are seeing a return of investors to companies that have promising technology," Leedom said. He added local firms such as Vical Inc., Nanogen Inc. and Neurocrine Biosciences Inc. recently have done "exceedingly well in a secondary offering."

Panetta said investors will put their money into biotechs that have a solid business plan and offer promising technology. He added local biotech leaders who can communicate their ideas will succeed in today's competitive climate for research dollars.

"Just look at what La Jolla Pharmaceutical has done," he said. "They were under a dollar a few weeks ago and now are up $2 (on Dec. 21)."

Panetta speculated as many as a dozen local products could be approved this year, but added it's impossible to guess on an FDA verdict.

Panetta agreed with the three respondents of the survey that San Diego is a good place to do business. But, he added, there's plenty of room for improvement.

On San Diego's upside are its climate and scientific brainpower; on the downside are high taxes, the rising cost of real estate and traffic congestion.

Nevertheless, Biocom's fight to achieve biotech growth will prevail, he added.

A Biocom priority is the construction of a regional biotech manufacturing park in Otay Mesa through private-public funds, Panetta said. The plan is still in the preliminary stages of discussion but is important to the industry's growth here, he said.

Gary Richardson, president of Akkadix, also foresees a bright future for local biotech entrepreneurs.

"The entrepreneurial spirit in San Diego is one of people who are successful or will be," Richardson said. "If you work in San Diego long enough, you'll be successful."