The Quest for Pay Dirt : From Idea to Market in Biotech Business Is Long, Risky Trail

So ya wanna start a biotech company?

You need a marketable idea for a drug or diagnostic product, money to pursue it, scientists who think they can develop it and an executive to serve as part public relations front man, part in-house cheerleader, part ego-massager, part drum beater, part fund-raiser and part point man to shepherd the product through the regulatory process.

Then you hope nobody else beats you to it.

That’s the part that’s driving Dr. Jay Kranzler crazy.

It can take up to 10 years or longer--and $100 million or more--to take an idea for a new medicine, design it, develop it, test it, get it approved by the U.S. Food and Drug Administration and, finally, get it on the market.

“My fear is that we’ll be five years into a project and realize, only then, that the product won’t work--or that someone else will come up with a product that supersedes what we’re working on,” said Kranzler, president and chief executive officer of Cytel Corp., located on the east side of Torrey Pines Road on a bluff overlooking Interstate 5. “I’m waiting 10 years for the product--and I know I can be knocked off my high horse any day.”

His company is in the test-tube stage of making therapeutic medicines to help govern the body’s immune system. Animal tests--and, ultimately, clinical tests involving human volunteers--must come before FDA approval of the drug.

Kranzler is 33, small-framed, wears glasses and short hair, is funny and--unlike some of the executives in San Diego’s biotech industry who are awash in their own egos--doesn’t seem too taken with himself.

“I was going to be a doctor. I’m a good Jewish boy, and all good Jewish boys are doctors or lawyers,” he said. “But, when I was 19, I realized I didn’t like medicine. I liked science, but not medicine.”

So, after he placated his parents by earning his requisite medical degree from Yale, he got his Ph.D. from Yale as well--in psychopharmacology, or drugs that modulate the chemical activity within the brain.

He merged his immediate interest and his medical training by becoming a consultant for a management consulting company that needed someone steeped in science to address the firm’s medical clients.

“They were willing to pay me $100 an hour. What did I have to lose?” he said.

Kranzler got the attention of Ted Greene, who had been the CEO of Hybritech, San Diego’s first major--and most successful--biotech company.

As was the case with other founders of Hybritech who left to start still more companies, like some entrepreneurial cascade, Greene in 1988 had just started Cytel, along with Dr. Howard Grey--formerly the head of the basic immunology research division at the National Jewish Hospital in Denver and previously a researcher at Scripps--and Richard Lerner, president of the Research Institute of Scripps Clinic.

“I had spent the prior seven years up to my eyeballs in immunology, running Hybritech. I knew a lot about immunology, and knew that, from a pharmaceutical standpoint, it was an untapped frontier,” said Greene, who had already left Hybritech and was heading his own venture capital firm.

The real catalyst to form the company, Greene said, were fresh discoveries involving the mechanism that activates the immune system.

Grey was brought in because of his expertise in immunology, and Lerner was valued for his scientific vision and because of the work Scripps scientists were doing in molecular design work, Greene said.

“The three of us had a convergence of interest: the design of small molecules to modulate the body’s immune response system,” Greene said. But Greene didn’t want to personally run Cytel. Neither did he want a scientist running the ship. So he tagged the young Kranzler--a hybrid scientist and businessman--to take over the reins as CEO, while maintaining himself as chairman of the board.

“Jay’s one of the brightest guys I ever met,” Greene said. “He combines an absolutely unique grasp of the medical and scientific aspects of his business, since he has both an M.D. and a Ph.D., with his strategic business understanding.

“Most conventional VCs (venture capitalists) wouldn’t touch a guy like that. He hadn’t spent 25 years in the pharmaceutical business. He didn’t have gray hair.

“But he was young and exciting. I considered him the Steve Jobs (legendary co-founder of Apple Computers) of the biotech world,” Greene said.

Kranzler, who lives in Del Cerro, is perhaps the youngest biotech CEO in San Diego.

How does he see his job? “To hire the best people I can, and to give them the resources they need. I’m the front man. And these guys that I hire have to produce, or else I have nothing to pitch.”

Today, Cytel--with about 95 employees--is designing drugs to kick sluggish immune systems into higher gear, and to slow down hyperactive immune systems that create their own problems.

When the immune system is properly balanced, the body fends off outside viruses and bacteria. But when it is too weak, it can’t fend off unwanted outsiders, and when it is too aggressive, it becomes a cancer, destroying the body from within.

One of Cytel’s proposed sets of drugs--seen as a cure for rheumatoid arthritis and diabetes--looks so promising that the huge Swiss pharmaceutical company Sandoz, the maker of the Triaminic cough syrup, gave Cytel $30 million to develop it. In exchange, Sandoz got the rights to market the drugs worldwide once they are approved. Such corporate bondings are major success milestones for the small biotech firms. (The other $10 million invested in Cytel comes from private venture capitalists.)

Grey left a basic research institute--where raw discoveries are made but where the application of those breakthroughs is left for others to develop--in favor of a commercial drug company, where his role has flip-flopped.

“I wanted to see if there were any practical implications to the work I was doing,” he said. “I’m an M.D., and I had pangs of consciousness. What am I doing with my research? Am I applying it?”

Today, Grey, who lives in La Jolla, is one of Cytel’s two vice presidents for research. The other is Jim Paulson, who was UCLA’s only glycobiologist. His circle of colleagues who could talk his specific language--of the biological roles that carbohydrates play on the surfaces of cells--was stiflingly limited. But Paulson found Grey working in the same area, so he left academia in favor of a commercial drug company, and to work side-by-side with Grey.

His job, essentially, is to identify weaknesses in the human immune response system and to design molecules to fix them.

No one in a biotech firm is safe from the emotional ride of discoveries and failures--not even their families, even if they don’t altogether fathom it.

“I enjoy his accomplishments. I just wish I could understand more of what he’s doing,” said Bryna Kranzler. “I remember him on the phone at home saying to someone, ‘You found it? How fast can you repeat the experiment?’ We were on pins and needles for a couple of days. I had no idea what it was they were talking about, but it was exciting.”

If Cytel comes up with even just one successful drug--one “hit,” as those in biotech call it--the company stands to make millions of dollars. Kranzler, Grey and Paulson will get rich, too.

“Money is definitely a factor. Not the factor, but a factor,” said Paulson, who was making just over $100,000 a year at UCLA but had about topped out there. At Cytel, he was given a 30% pay raise and the opportunity for greater riches if the company strikes pay dirt.

“If there was an opportunity to reap financial rewards in the future, I owed it to my family to try,” he said. “It’s a risk, of leaving a stable job where I had tenure and a retirement plan. But the upside potential excited me.”

Said Grey: “There wasn’t much of a salary change for me, to leave Denver for here--especially after you factor in the local cost of living. But the big potential is the value of our (company) stock. That’s what we’re working toward.”

Kranzler left behind a much larger salary to join Cytel. “I was in a career where salaries were in orders of magnitude greater than they are here. My salary here doesn’t compare to what I had.

“But,” he said, “there’s that potential.”