S.D.’s Biotech Industry Is Rooted in Academia : Science: Companies, in Hybritech’s footsteps, started out modestly, with little more than idea, and caught on.

The rise of biotechnology in San Diego has become evident in the hushed corridors of Procopio, Cory, Hargreaves & Savitch, an old-line commercial services law firm 19 stories above B Street.

It was there, a few years ago, that attorney Wain Fishburn Jr. started infusing the more traditional lawyers’ lexicon-- injunctive relief and cause of action and corporate liquidations --with a new workaday vocabulary: receptor binding sites and cleaving enzymes and thrombosis cascade .

Fishburn had become the resident expert on biotechnology--a new field of business for the law firm that had some of the old-timers shaking their heads. Fishburn was now talking about seed-round investors and burn rates and cram-down financing and strategic alliances--moneyspeak in the world of biotechnology start-up companies. One attorney even made a list, for circulation within the office, of these new “Wainwords.”

“They started taking me seriously, though, when they started seeing biotech stories in the business pages,” Fishburn said. “They realized that maybe I was onto something.”

Indeed, biotechnology is no longer the new kid on the block in San Diego. It may still be the stranger, but it’s been around long enough now to have made some critical friends in town.

Those friends include investors and property leasing agents, accountants and attorneys, supply houses and public relations professionals.

Today, San Diego is the nation’s fifth-largest center of biotechnology and growing faster than the rest.

“Thanks to biotech, I think we’ve got more Ph.D.s per capita in San Diego than in any other major city in the nation,” said Bill Otterson, director of UC San Diego’s Connect Program, which encourages high-tech entrepreneurship in the area.

He predicts that $1 billion in outside corporate investment will be pumped into local biotech firms over the next year or two, and he names 10 companies that each hopes to raise $100 million in capital this year alone.

“If even half of those companies succeed,” he said, “we’ll have five companies in San Diego that will be larger than Genentech,” the biotech success story of San Francisco.

How did it evolve, this San Diego biotech industry? It seems to have happened almost surreptitiously, as if the companies were cloaked in the latest Stealth technology.

Yet the process has been fairly simple. The companies start off as small, privately financed ventures, with arresting ideas but no product to promote. They’re tiny at first, employing a handful of people. They lease. And they often go years without justifying a single newspaper headline.

Biotechnology really isn’t new to San Diego. Its roots are established at UCSD, the Scripps Institute and Research Clinic and the Salk Institute--premier institutions among the nation’s research facilities that focus on life science.

Associated with them are an estimated 3,000 biotech researchers--Ph.D.s and postdoctorate fellows, Nobel laureates and young lab technicians--who add to humanity’s understanding of life science and publish their discoveries in science journals, nurturing still more discoveries in other labs.

Theirs is basic, raw scientific research, the starting point of discovery, where there may be no greater agenda than the most pure: to learn something new simply because it has never been learned before.

For these researchers, the payoffs have been relatively simple: winning the recognition of peers by having scientific papers published, and, later, by winning grants for continued research.

“You can insult these people by saying they do applied research,” cautioned Ray Kahn, who oversees technology transfer at Scripps.

But many researchers want to follow through on their discoveries and determine if they have real-life applications. Typically, that applied research is conducted outside the basic research institutions, in an arrangement known as “technology transfer,” whereby a private company will negotiate an agreement to exploit the institution’s basic findings. The institutions value such a licensing agreement because it validates their research, puts the discovery in the commercial arena where it can be developed to serve the public, and because the agreements can become a significant source of funding for continued research projects. A single licensing agreement can amount to tens of millions of dollars.

The particular researcher may enjoy a relatively small financial reward for his or her work; more typically, the money simply funds more work. In some cases, the researcher may become a consultant for the company that is pursuing the product--a high-tech moonlighting job, of sorts, that is closely monitored by the institution itself.

“Consulting is acceptable. A little bit of prostitution is OK,” quipped Dr. Gerard Burrow, vice chancellor and dean of the School of Medicine at UCSD.

Sometimes, though, a researcher who believes he is on the threshold of developing an altogether new and needed drug may choose to champion it full time. He will abandon his institutional research post--jump ship--and go to the commercial side of the business to continue focusing on the work.

Burrow says he is saddened by those who do. “When they leave, they’ve sold out to Mammon (the god of greed). . . . I would never leave. I’m a researcher. That’s what drives me.”

But some scientists say they have little choice. Too many commercial companies won’t pursue a drug that hasn’t been designed within their own ranks, they say.

“It’s the not-invented-here syndrome,” said Dr. David Katz, president of Lidak Pharmaceuticals in Torrey Pines.

Biotech executives wonder how many hundreds or thousands of great ideas are not pursued because they weren’t conceived in-house and were shunned when offered by an outsider. As a way of keeping a drug invention alive, a researcher may follow it to a company that will pursue it, or may start his own company--first by finding someone with the money to back him and then, most likely, finding a chief executive officer with business acumen in pharmaceuticals to run the business side while he runs the lab.

That’s essentially how Hybritech, the granddaddy of commercial biotechnology in San Diego, started in 1978.

Dr. Ivor Royston, a cancer specialist, and his lab technician, Howard Birndorf, studied monoclonal antibodies together at Stanford University. They continued their work when Royston came to UCSD in 1977 and asked Birndorf to join him.

As part of the body’s natural immune system, antibodies seek out and mark or kill specific cells, typically unwanted ones that would cause illness. Early research indicated that artificially created, genetically engineered single-purpose monoclonal antibodies could be bred en masse in test tubes. Among their potential uses were in medical diagnostic kits, to seek out and chemically mark the presence of, say, an allergy, cancer or an embryo.

Royston wondered how to capitalize on the new technology and in 1978 ran the idea past San Francisco venture capitalist Brook Byers. After reviewing monoclonal antibody research for six months, Byers decided to invest $300,000 to get the company started.

Royston remained at UCSD but was Hybritech’s chief scientist; the 28-year-old Birndorf left UCSD to run Hybritech’s laboratory, and money man Byers selected Ted Greene--an Orange County businessman who was also talking of starting a monoclonal antibody company--to be president.

Hybritech is widely regarded as San Diego’s first and most successful commercial biotech company. In 1985, Eli Lilly & Co., a pharmaceutical giant, bought Hybritech for nearly $500 million. An estimated 2 dozen ground-floor Hybritech employees became instant millionaires. Even the person assigned to wash the lab glassware made $500,000 when the company was sold, Byers said.

About 50 Hybritech people have since left the company to work for other San Diego biotech firms, or to start their own.

Today, the English-born Royston, 45, is founder of Idec Pharmaceuticals and is starting the nonprofit San Diego Regional Cancer Center. Birndorf, now 40, has helped form four new companies, the most recent of them Ligand Pharmaceuticals, which is working on arthritis, osteoporosis and heart disease.

Greene, 48, has helped start nine companies in San Diego, most recently Amylin Corp., which is working to develop hormones to diagnose and treat diabetes. And Byers, 45, has helped stake six biotech companies in San Diego to the tune, he says, of $30 million.

“Every three or four weeks, I’m hearing of a new biotech company in San Diego,” said Martin Nash of La Jolla, president of the Assn. of Biotechnology Companies.

“We won’t blow away the classic pharmaceutical companies,” he said. “They look for traditional extracts to serve as new medicines. But we’re taking the virus, seeing how it works and looking for the molecule--or designing new compounds--to stop it.”

Ernst & Young, which annually surveys the biotech industry nationwide, and UCSD’s Connect Program, established to promote high-tech entrepreneurship, last surveyed the local biotech community about a year ago. The results, released in November, show that five new biotech firms had been formed in San Diego over the past 12 months, six companies brought their first products to market, and employment in the private, commercial ranks of

biotech in San Diego had grown to more than 5,000.

A third of the responding biotech companies said they primarily develop medical diagnostic products. More than one in four said they focus on therapeutic drugs, and nearly one in four identified themselves as biotech suppliers.

Why do biotech companies locate in San Diego? More than one in four said it was the quality of life; nearly that many said it was the access to universities and research institutes, and one in five said they were drawn here by the region’s existing reputation as a biotech center.

As the region’s biotech industry has matured, once-reluctant landlords have grown more willing to lease their buildings to scientists.

“Fourteen years ago, landlords thought I was off my rocker, trying to get them to lease buildings--and put in $100 a square foot in improvements--for a start-up company that’s got very little money to start with, losing money every month, gets approval for funding from venture capitalists on a year-to-year basis, and won’t have a product to sell for at least 10 years,” said Brent Jacobs, who specializes in biomedical clients for real estate brokerage firm John Burnham & Co.

Landlords were at first troubled, he said, by demands for storage of hazardous waste, sturdier floors to handle heavy lab equipment, air-conditioning and ventilation systems that would quickly recirculate 100% of the lab’s air, and the need for vivariums--holding areas for small rodents.

“Those things can run $300 a foot to build. Landlords get very skeptical when you start talking about clients doing AIDS research, of ‘dirty mice’ getting loose and running to the insurance company next door,” he said.

Overall, he said, biotech labs cost twice as much to construct as normal office buildings--costs the landlord must front and pass on to the tenant over the life of a five- or 10-year lease.

“It’s easier now to get the landlords to do that,” Jacobs said. “They realize that these companies are good citizens who pay their rent. They see San Diego developing more success stories like Hybritech. And, if their tenant does go under, the landlords realize now that there will be another start-up company waiting in the wings, ready to use those same improvements.”

TO MARKET: The path from idea to marketplace is long and sometimes risky. B1

Some Landmarks on San Diego’s Biotech-Scape

1.--Hybritech Inc., San Diego’s first and most successful biotech firm. Established in 1978, it makes diagnostic kits. 2.--Cytel Corp., looking for cures for arthritis. Led by Jay Kranzler, one of the youngest biotech chief executives in the country. 3.--Lidak Pharmaceuticals, searching for a cure for herpes and AIDS. 4.--Stratagene, a supply firm specializing in DNA analysis kits. 5.--Corvas Inc., where researchers are studying how blood clots are formed and can be dissolved. 6.--Telios Pharmaceuticals, working on medicines to better heal skin wounds. 7.--Gensia Pharmaceuticals, below Torrey Pines Mesa in Sorrento Valley, developing cardiovascular drugs. 8.--Genta Inc., on the grounds of general Atomics, investigating “anti-sense” technology as a way to stop disease at the genetic level. 9.--Salk Institute, one of the three pillars of biotech basic research in San Diego, along with Scripps Clinic and Research Foundation and UC San Diego. 10.--Mycogen, in Sorrento Valley, where researchers are developing new forms of agricultural pesticides. 11.--Ligand Pharmaceuticals, on Towne Centre Drive, where they’re looking for cures for arthritis, osteoporosis and heart disease. 12.--Amylin, next door to Ligand, where hormones are being studied to diagnose and treat diabetes. 13.--UC San Diego, home of John Muir College and the first university-based center for the study of molecular genetic therapy in the nation. 14.--Choices Restaurant, on the campus of the Scripps Clinic and Research Foundation, featureing perhaps the cheapest--and healthiest--dell and salad bar lunch around Torrey Pines. 15.--Sheraton Grande Torrey Pines, next door to Scripps, popular for its buffet lunch and the year-round home of a venture capitalist who visits his La Jolla companies frequently from Marin County.