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Originally published September 11, 2010 at 10:00 PM | Page modified September 13, 2010 at 12:04 PM

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Sunday Buzz

ZymoGenetics sale part of biotech's harsh life cycle

Whether or not they paint over the "ZymoGenetics" signs on the ersatz smokestacks atop its headquarters in the old Lake Union steam plant, another signature biotechnology company here has been swallowed by Big Pharma.

Is that so bad?

Arguably, biotech is thriving in Seattle because of such sales, not despite them.

Bristol-Myers Squibb this past week offered ZymoGenetics investors $9.75 per share for what had been a $5.50 stock. The news came with a tepid reassurance to the 300-plus employees that Zymo's laboratories will remain here "at least through 2011," triggering memories of the shutdown that followed Eli Lilly's acquisition of Icos.

Back in 1986, Bristol-Myers acquired Seattle's first prominent biotech company, Genetic Systems. A dozen years later, the surviving local research operation was closed.

But Clay Siegall, who lost his Bristol-Myers job in that closure, isn't among those mourning Zymo's sale.

"It's how the industry has grown over the years," Siegall says. "You embrace it and look toward the new generation of companies coming up."

Siegall and colleague Perry Fell licensed some unwanted technology from Bristol-Myers and founded Seattle Genetics, which now employs 325 and is worth $1.2 billion.

"It shouldn't be considered a loss, it's a life cycle."

Amgen acquired Immunex. Lilly bought Icos. Merck acquired Rosetta Inpharmatics. Corus Pharma was sold to Gilead Sciences. And just last month Trubion, from the most recent crop of public biotech companies here, agreed to be acquired by Emergent Biosolutions.

Not all such sales end in empty laboratories: Amgen went ahead with the big research campus Immunex had planned, and Gilead pumped $50 million into a new building where its Seattle unit has been adding staff.

Still, the parade of acquisitions frustrates those wishing that a big, long-term Seattle employer along the lines of Amazon, Starbucks or Microsoft will emerge from the ferment of life-science startups. Dendreon, with a recently approved prostate cancer-treatment drug and a market capitalization of $6 billion, is the current standard-bearer for that hope.

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But industry executives and investors say the biotech industry just doesn't operate that way any more.

"It's a nice aspiration, but it's not a likely outcome. And you can't find many markets where that has actually happened," says Carl Weissman, CEO of Seattle-based Accelerator, which launches and manages biotech startups. There are very few large, independent biotechs like Amgen and Biogen, and even industry paragon Genentech was absorbed by pharma giant Roche, he notes.

"The focus should not be so much on growing an anchor tenant, but on continuing to foster innovation in the sector and importing technology and talent and capital to the region to grow that with," says Weissman, who is a managing director at OVP Venture Partners.

There may be some stakeholders unhappy with the ZymoGenetics sale, he says — "employees who are worried about being unemployed in this economy, and stockholders who didn't make money off of this transaction."

But job security wasn't a Zymo benefit; last year it cut 162 employees, one third of the staff, as it conserved cash and narrowed its research efforts. And Bristol-Myers is paying about 80 percent more for the stock than anyone else did recently.

The promise of an eventual sale to some bigger company is virtually the sole scenario that currently enables cash-hungry biotech companies to attract funding, say industry veterans.

Only two local biotechs have completed initial public stock offerings since Zymo did in 2002. And while millions of dollars are needed to show the first glimmer of effectiveness for a potential biotech drug, that cash "is dwarfed by the capital needed" to reach regulatory approval and manufacturing, Weissman says.

Meanwhile, the big drug companies are losing patent protection on many of their profitable franchises, and willing to pay handsomely for potential new drugs. Bristol-Myers is buying Zymo for its promising research pipeline, most notably a compound to treat hepatitis C.

"The beauty of small startups is that a lot of them take on high-risk concepts, and when they are successful, Big Pharma really wants them," says Bruce Montgomery, who founded Corus and sold it to Gilead in 2006 for $365 million.

New companies spring up as the acquisition dust settles, says Seigall. He recalls that a half-dozen years ago, when the remnants of local startup Darwin Molecular were closed by the U.K. company that owned it, some employees borrowed Seattle Genetics office space as they pondered a new venture.

That became Alder Biopharmaceuticals, which last year got $100 million in upfront payments for a collaboration deal (with Bristol-Myers, coincidentally).

Montgomery, too, is working on a startup called Cardeas Pharma with colleague Melissa Yeager, who's accompanied him through both Corus and a previous company that was acquired, PathoGenesis. He says they are looking at three or four possibilities, still "trying to figure out what to do."

"The sweet spot is something that delivers a great medication to patients, at the same time decreasing health-care costs. That's the mantra we're working on," he says.

Similar regeneration is likely after Bristol-Myers completes its ZymoGenetics deal, Seigall says. "I personally hope that one, two, three spinouts will come out of Zymo. I would almost expect that."

Weissman says the area's "rich history" of biotech successes still ranks it third or fourth among U.S. biotech centers, and makes it the place where Accelerator starts all its companies.

"This recycling of entrepreneurs and technologists and capital — that's the real proof of the pudding that we have a healthy industry."

Rami Grunbaum: rgrunbaum@seattletimes.com or 206-464-8541.

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