Biotech Breeding Ground : San Diego Finds Niche, Becomes an Industry Leader

San Diego is placing big hopes and considerable civic effort--including a unique organization at UC San Diego and a specially appointed city ombudsman--on at least one new industry that so far has yielded a lot of small, money-losing companies, most of which face years of testing and experimentation before they can bring products to market.

Is this new age fantasy or sound industrial policy?

Emphatically the latter. The industry is biotechnology, and San Diego’s efforts to encourage it as well as computer and telecommunications companies constitute a highly intelligent way to support new business, with lessons for other communities.

Results so far are impressive. San Diego’s roughly 200 biotech and related companies now employ more than 17,000 people, helping to relieve some economic distress from the departure of defense business.

Conditions are demanding in biotech--ultra-clean premises, sterile steam to scald instruments. But the pay isn’t bad for manufacturing workers--$25,000 a year on average.

It’s an industry of the future and a field in which California has more companies than any other state--but it’s not an easy business.

“The product discovery and development cycle is 10 to 12 years,” says William Rastetter, president of Idec Pharmaceuticals, a company founded in 1986 that hopes to bring out its first product next year.

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The product could be a blockbuster: a genetic treatment for lymphomatic cancer that would eliminate the need for devastating chemotherapy and radiation. Idec’s product, as yet unnamed, could save lives by reducing patient susceptibility to infection and hemorrhage, and could be cheaper than chemotherapy. If it works.

There are no guarantees. One of San Diego’s most promising companies, Gensia Inc., went through clinical trials last year for Protara, a product intended to reduce heart attacks, strokes and other medical emergencies during coronary bypass surgery. But the trials found that Protara didn’t have much effect one way or the other. So the Food and Drug Administration declined to approve it.

Gensia has gone back to the drawing board and remains a leader in research on ways to prevent or alleviate stroke, epilepsy and heart disease. But the lengthy testing of Protara cut its available working capital, necessitating the sale of more stock to pharmaceutical company partners here and abroad. Typically, biotech companies subsist on research funding from larger drug companies, who look for rights on new products.

And they subsist on proceeds from public sales of their stocks, which appeal to investors with an appetite for risk. Gensia sells now for about $3 a share, where it sold last year for $23; Idec, which is developing its lymphatic cancer drug on money raised by a 1988 research partnership, sells now for about $2.25 a share but sold in 1991 for $21.

The stock prices reflect a roller coaster of investor expectations. But the biotech companies of San Diego are not as shaky as such stock prices might suggest. They have assets in personnel and in location.

Most of the companies are owned and run by people who understand the scientific basis of the business, which allows them to attract research money from around the world and to be flexible.

Molecular Biosystems, for example, was founded in 1980 to work in cell genetics but switched six years ago to diagnostic compounds and has just won FDA approval for a product, Albunex, that makes possible clearer images in ultrasound.

DepoTech Corp. has developed an injectable foam that slows the working of drugs in the body, minimizing disturbing side effects. Gensia has a combination drug and computerized cardiogram, called Genesa, that allows earlier diagnosis of heart disease.

The business is far more than a hit-or-miss gamble on this new drug or that.

And in San Diego, site of the world-renowned Scripps Research Institute, Salk Institute and the science and medical schools of UC San Diego, local companies have access to some of the world’s most advanced biomedical research.

Also, they have the support of San Diego’s city government, which has appointed an ombudsman, Kurt Chilcott, who shepherds high-tech industry’s requests for permits through the City Council and regulatory agencies.

Still, other cities have research institutes and helpful city halls. What sets San Diego apart is the Connect program at UC San Diego.

Connect is an independent organization that brings together university researchers, venture capitalists, major finance houses, local entrepreneurs and big companies looking for partners. It holds teaching forums for company employees and provides counseling on finance and company management.

But it is not funded by UC San Diego. Rather it raises its $1.3-million annual budget from company sponsors and forum fees. That gives it a freer hand in helping business while contributing to university efforts to commercialize its research.

William Otterson, a retired computer entrepreneur who has directed Connect since 1986, is modest about its role in getting hundreds of high-tech businesses going. “Would entrepreneurs have founded companies without Connect? I’m sure they would,” he says.

But university specialists in other areas look enviously at San Diego’s network. “A big disadvantage of Los Angeles is its sprawl; it’s hard for business people to make connections,” says Michael White of the USC entrepreneur program. Michael Darby of UCLA’s business school says local universities haven’t been aggressive in promoting entrepreneurial business--although UCLA has approached Connect for pointers in setting up a program.

So what more do Los Angeles and Orange County--not lacking themselves in great universities--need? Otterson of Connect cites “an active business infrastructure, a willingness of local companies, in law and construction and public relations and finance, to get involved.

“And you have to have entrepreneurs,” he adds.

Well, California has entrepreneurs in abundance. But San Diego is doing a superior job of helping them get started.

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A Many-Celled Industry

Biotechnology companies are arising and growing in many parts of country, but particularly in California and New England. California is home to 376 of the nation’s 1,311 biotech companies. A breakdown of biotech firms by region, with the total numbers in parentheses:

San Francisco Bay Area: 15% (202)

New England: 13% (175)

Washington, D.C., area: 9% (114)

San Diego: 8% (103)

New York: 6% (86)

Los Angeles and Orange counties: 5% (71)

Other: 44% (560)

Source: Ernst & Young 1995 Annual Report on the Biotechnology Industry