Posted on: Sunday, September 14, 2003
Startup bred San Diego biotech boom
By Denise Gellene
Los Angeles Times
Relying on advice from a how-to book, two scientists from the University of California, San Diego, started a company in the late 1970s called Hybritech Inc. — and ignited a local biotech boom.
Although their company no longer exists, it transformed the commerce of the San Diego region, which now ranks as the nation's third-largest biotech center, behind San Francisco and Boston.
Today, nearly 60 companies can trace their roots to Hybritech, known in the biomedical field for its test to detect prostate cancer.
At Hybritech's founding on Sept. 14, 1978, the city long known for surf and Shamu lacked the key ingredients needed to build companies: venture financiers, seasoned drug company executives, commercial lab space.
"We were young and didn't realize there was no way to accomplish what we did," said former Hybritech Chief Executive Ted Greene.
When Eli Lilly & Co. acquired Hybritech in 1986, the deal made two dozen ground-floor employees instant millionaires. But more important, it spawned a generation of new companies. Hybritech's progeny are working on drugs for cancer, diabetes and other diseases.
Hybritech co-founder Howard Birndorf rolled his fortune into six successive companies, including Idec Pharmaceuticals Corp. in San Diego, one of the nation's largest biotech firms, with a total stock market value of $5.3 billion.
In all, San Diego boasts 290 biotechnology companies, adding breadth to a regional economy that had been reliant on tourism and aerospace, a shrinking industry. In 1997, employment in the biotech sector surpassed that in aerospace for the first time.
"Hybritech started it all," said Andrea Moser, vice president of the San Diego Regional Economic Development Corp.
At 25, San Diego's biotech industry still has some growing up to do.
Because it takes years to design and test a drug, few of San Diego's biotech firms have products approved for sale — although as many as 75 biotech drugs from local firms are in human tests and could reach the market in the next three years, analysts say.
What's more, to grab manufacturing jobs for San Diego, the biotech industry must develop beyond its roots as an R&D hotbed. The idea behind Hybritech was fairly simple. Ivor Royston and Birndorf, faculty members at UC San Diego, wanted to use man-made antibodies to diagnose and treat diseases. Cribbing from the how-to book, they wrote a business plan and searched for money.
Royston's wife knew financier Brook Byers, who persuaded his firm, Kleiner Perkins Caufield, to invest $300,000 in Hybritech, nearly twice the amount the founders had asked for. Weeks later, Birndorf drove to San Francisco to pick up the check and became so excited on the way back that he ran out of gas.
Kleiner Perkins, now firmly in charge, looked east for seasoned managers to run the fledgling company. Former Baxter International executive Greene joined Hybritech as chief executive. He brought in a half-dozen managers from medical device and drug companies, luring them with cutting-edge science and an endless summer.
In one successful ploy, the company flew reluctant job candidate David Hale from Baltimore in the dead of winter and put him up in a beachfront hotel with a view of the glistening Pacific. The visit persuaded Hale to leave a stable medical device firm for Hybritech, then operating in rented trailers.
"When I met with Ted and found out what they were doing, I was very impressed," Hale recalled. "But I am not sure what would have happened if it hadn't been snowy and sleeting in Baltimore."
The company's first product, an antibody for the hepatitis B virus, reached the market in 1980. Hybritech went public in 1984, and Eli Lilly paid $480 million for the company two years later.
Hybritech didn't fit with Lilly, which later sold it to medical device firm Beckman Coulter Inc. By then, everyone on Hybritech's management team had marched out the door.
"It was bad for Hybritech but good for the industry," said Royston, now a financier at Forward Ventures in San Diego.
Hybritech's ex-CEO Greene helped launch six companies, including the diabetes drug developer Amylin Pharmaceuticals Inc. in San Diego. Hale is on his fourth firm, CancerVax Corp., a Carlsbad, Calif.-based melonoma vaccine developer poised to go public. Royston co-founded Idec, which produced the first antibody drug for cancer and is expected to earn $157 million this year.
Industry leaders are encouraged that Idec is continuing plans for a drug factory in Oceanside, Calif., despite its pending merger with Biogen Inc. of Cambridge, Mass.
Still, it is unlikely that San Diego's nearly 300 biotechs will mature into full-fledged drug companies. Ernst & Young concluded in a report this summer that too many biotech companies nationally are piling up too much red ink; mergers and alliances are inevitable.
A two-year financing slump has pushed some San Diego-area companies to the edge.
Rents are down and lab space is empty in the science parks along Torrey Pines Road, ground zero for the region's biotech industry. Brent Jacobs, senior vice president of Burnham Real Estate Services in San Diego, estimates that 10 percent of the region's 14 million square feet of lab space is vacant.
"Right now the industry is going through a tough time," Jacobs said.
Recently, large drug companies have put down stakes in San Diego, investing millions in high-tech research labs. That means startups must compete with Merck & Co., Pfizer Inc., Johnson & Johnson and Novartis for talent and real estate.
Still, business leaders don't consider Big Pharma a bad neighbor: Its presence lends stability to an industry dependent on often scarce investment capital.
