I know what you’re thinking: that’s a pretty strange headline. Why would a city want to attract or build companies that are only “semi-successful?” Wouldn’t it want companies that are flourishing or expanding rapidly? Actually, here in Seattle, we don’t. Semi-successful companies are exactly what we need here as the river of economic change washes through the biopharmaceutical ecosystem. Why “semi-successful” companies? Because very successful companies get bought out as Big Phama retools its business models. These days it’s goodbye, internal R&D; hello acquisitions, collaborations, and contract research organizations.
So what’s my definition of a “semi-successful” biotech company? Essentially, it’s one whose product sales are too small to make it attractive enough to be swallowed by the bigger fish in the sea. The revenues earned by a “semi-successful” company simply won’t boost the earnings of a large pharmaceutical company enough to make the acquisition worthwhile. Big Pharma wants filling, tasty meals, not little snacks. When you have over 100,000 employees and 2013 sales in the $58 billion (Novartis) to $71 billion (Johnson & Johnson) range, it’s hard to find drugs that can significantly expand top line sales. Mergers and acquisitions accomplish this task via the miracle of “synergy,” a euphemism for “laying off large numbers of redundant employees to get the profits where they need to be.” The formula is simple: M&A = product acquisitions + synergy (– employees – empty buildings).
The current poster child of a “semi-successful” biotech company is Seattle Genetics (NASDAQ: SGEN), which has enjoyed meteoric job growth over the past few years. It has developed a terrific technology platform (antibodies that are specially coupled to cellular toxins) that led to its first drug, brentuximab vedotin (Adcetris). This medicine is used in the treatment of Hodgkin lymphoma. Sales have been ramping up nicely since it was approved in 2011 but are not yet near the level that would attract the interest of the big players. Dendreon (NASDAQ: DNDN) would have been counted as a “semi-successful” company a few years ago, but its reversal of fortune (as a result of mismanagement and product competition) has left its future cloudy with a strong chance of insolvency.
Other local biopharma companies with the potential to achieve “semi-successful” status include Omeros (NASDAQ: OMER), Alder Biopharmaceuticals (NASDAQ: ALDR), TapImmune (OTC: TPIV), and Immune Design (NASDAQ: IMDZ). All of these companies are publicly traded. Revenues will need to be large enough that the company can expand locally, continue hiring, and build on early successes. Publicly traded companies that already have Big Pharma partners, such as Acucela (TYO: 4589) and Oncothyreon (NASDAQ: ONTY), are less likely to achieve “semi-successful” status as a result of those relationships. Clinical success will likely lead to their rapid acquisition by those who have already invested in them.
Attracting “semi-successful” companies at any developmental stage is not an easy task. Even if we could identify such companies, what strategies could be used to recruit them here? Investors clearly don’t have a crystal ball that will help them predict which companies will be successful, for if they did they wouldn’t put so much money into startups that ultimately go bust. Is there a way to facilitate the growth of startups into “semi-successful” companies?
Anchor Companies Have Not Proven To Be Saviors Here
I’ve previously suggested, as have many others, that we should try to recruit branches of Big Pharma companies to Seattle. The rationale: as big, stable organizations, they should serve as “anchor” companies that can help absorb employees let go by startups that fail or are acquired. This approach has not worked out as well as hoped, with some of our “anchor” branches sinking under the weight of parent company financial shortcomings. The historical view of Big Pharma companies as stable turned out to be a mirage; they have collectively laid off around 300,000 of their own workers over the past dozen years. Along the way the strong gobbled up the weak, hoping the fiscal forces of “synergy” would work their miraculous effects. Biopharma remains in a state of flux, with its leading companies trying to reinvent their research and development programs as well as their overall business models. Some financial analysts have even suggested that Big Pharma companies should jettison their internal research programs and focus on developing molecules acquired from academia or smaller biotechs. Think small “r,” big “D.”
Amgen (NASDAQ: AMGN) recently announced it is shutting down its two Seattle area sites, which will eliminate a total of 660 jobs here (though an unspecified number of employees will be offered positions at other company locations). More dismal news followed: Novo Nordisk announced that it was ending its inflammation program and cutting 63 jobs in Seattle (leaving behind its 50 person diabetes workforce), and the dissolution of Accelerator graduate Allozyne was also reported. We still have branches of Gilead Sciences (NASDAQ: GILD) and Bristol-Myers Squibb (its ZymoGenetics subsidiary) here, but many of the industry dreadnoughts (e.g. Pfizer, Eli Lilly, Roche, GlaxoSmithKline, AstraZeneca, Novartis, J&J) have not come our way. Where do you think the Amgen/Novo Nordisk/Allozyne employees will go? A website listing current biopharma Washington jobs here showed only 120 positions available as of September 4th. By contrast, the MassBio website offered up 1,602 positions in Massachusetts.
Since different cities and states employ different types of job boards, I also looked at job listings on Monster.com to enable an apples-to-apples comparison. Part of the problem in doing this is that only the most generous interpretation imaginable would allow some of these jobs to be classified as biotech positions (e.g. a raw materials manager at Nordstrom?). With that caveat in mind, Seattle had 337 biotech jobs on the Monster.com website. By comparison, Boston listed … Next Page »
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