Wave of Biotech Start-Ups Expected
Excitement over the mapping of the human genome is whetting investor interest in biotechnology start-ups, which had been overlooked in the dot-com craze. Venture capital investment in biomedical firms rose during the fourth quarter of 2000 and is expected to continue its march upward this year.
Total venture funding is expected to increase beyond the $1.75 billion invested in 2000, according to PricewaterhouseCoopers and VentureOne. Much of the money was funneled into Silicon Valley, the Boston area, San Diego and North Carolina’s Research Triangle, a pattern unlikely to change this year.
What is different, experts say, is the optimism about biomedical investments, which can take several years to pay off for investors. Nearly 90% of Silicon Valley venture capitalists plan to increase or continue their level of investment in biotech, according to a recent survey by Deloitte & Touche, a consulting firm. That’s more enthusiasm than venture capitalists had for other high-tech businesses, including wireless communications, software and e-commerce.
How this will benefit nascent biomedical firms in Los Angeles remains to be seen. Historically, local businesses have received significantly less support than those in Silicon Valley and San Diego, where venture firms with a taste for esoteric biomedical research are located. Those regions also receive more funding for medical device start-ups, though the Los Angeles-Orange County area is the runaway leader in that field.
A recent government-sponsored report identified the emerging field of bioinformatics, the marriage of biotechnology and computer science, as an area in which Los Angeles can leverage its home-grown expertise. The technology behind the sequencing machines used to map the genome and sort it into 30,000 or so genes was developed at Caltech.
Bionomix, a Caltech spinoff, is designing computerized tools to determine the structure and function of proteins. GenBasix, a spinoff of City of Hope in Duarte, also is engaged in bioinformatics, and the Canadian firm Inphogene is setting up a research facility in Pasadena.
But Los Angeles by no means has the field to itself. San Diego boasts several bioinformatic firms, as does the Bay Area, where Incyte Genomics is using its own software to map human genes.
Still, “a lot of the critical pioneering was done here,” said Caltech chemistry professor John Baldeschwieler. “It’s an enormous opportunity.” Baldeschwieler participated in preparing the report, which was funded by Cal State University.
Despite the reservoir of biotechnical expertise at USC, UCLA and Caltech and the proximity of Amgen Inc. across the county line in Thousand Oaks, Los Angeles hasn’t emerged as a center in the fast-growing field. Amgen, the largest and one of the oldest biotech companies, hasn’t produced spinoffs that would help give the industry critical mass. Along with Glendale-based Baxter Hyland Immuno, Amgen accounts for much of the region’s biotech employment, which stood at 6,074 in 1999, according to the research firm CorpTech. San Diego had 8,357 biotech workers, and the Bay Area had 23,515.
The Cal State report, released Monday, was part of a 2-year-old initiative to address a major obstacle to growth of the biotech industry in Los Angeles--the county’s sprawling size. It called for construction of a $20-million highly specialized facility in Pasadena that would house a biotech incubator and would be used to educate local college and university students. Pasadena was chosen because it is home to Caltech and is considered central to Thousand Oaks, Long Beach and Westwood.
Money hasn’t been appropriated for the facility, which isn’t a sure thing. Should the proposal progress smoothly, ribbon-cutting is three years away, Pasadena business development manager Eric P. Duyshart said.
Its proponents view it as a critical step toward developing a pool of highly skilled workers, which is needed to attract capital and keep scientific expertise in Los Angeles. Local scientists with an entrepreneurial flair have been forced to follow the venture money, which in many cases means relocating to either the Bay Area or San Diego, where there are also skilled work forces. Of the 32 biomedical spinoffs from university research tracked by Caltech, only 10 have remained in the Pasadena area.
CancerVax, a Santa Monica company founded by a surgeon at the John Wayne Cancer Institute, is moving its headquarters to Carlsbad to be closer to the venture firm that helped it raise $30 million. The company plans to manufacture its melanoma vaccine, now in clinical trials, in Marina del Rey.
“There is pressure to follow the VCs [venture capitalists],” said Ahmed Enany, director of the Southern California Biomedical Council, whose annual investment conference begins at UCLA today. In a sort of high-stakes beauty contest that’s become commonplace in the venture community, 21 start-ups, including Bionomix, will tout their companies before a group of investors.
Venture capital firms have long been the chief source of start-up equity for biotech firms. But the rapid pace of development is attracting other players. Asian pharmaceutical firms, led by the Japanese, are looking for prospects, according to a Bay Area consultant. And a Canadian venture firm is scouting in Southern California, in competition with domestic players.
“It has become a bit of the fashion,” said Graham Watson, a managing partner with Deloitte & Touche in San Jose.
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L.A.’s Lag in Biotech Funding
Though the Los Angeles area is home to such biomedical research centers as Caltech, UCLA and USC, it lags in biotech business start-ups, which is reflected in financing drawn to the region. Silicon Valley and San Diego capture the lion’s share of biotech funding in California.
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Sources: PricewaterhouseCoopers, VentureOne
