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Innovation Abounds posted on December 10, 2008

Local biotech companies focus on health-enhancing technologies.

By Adrienne Moch

While San Diego’s professional sports franchises have yet to achieve the coveted number one position in their respective leagues, our “biotech team” has facts to support its claim of being the top cluster in the United States. A 2004 study by the Milken Institute found that just a handful of metropolitan areas were succeeding on the scale required to achieve sustainability, and San Diego led the pack.

The study’s results, based on the broad factors of the biotech innovation pipeline and current impact assessment, came as no surprise to Joe Panetta, 54, president and CEO of BIOCOM, the largest regional life sciences association in the world, representing close to 600 member companies in Southern California. He noted that San Diego’s highly concentrated community of research institutions and biotech companies lends itself to the valuable exchange of personnel, ideas and technologies.

“You don’t see the tightly knit connections we have in San Diego anywhere else in the world,” Panetta says. “On a per capita basis, we also have more Ph.D.s, receive more NIH [National Institutes of Health] grant dollars and are granted more patents than any other city. This is the fuel that keeps the biotech engine running at a faster speed.”

The components of that engine vary in size and focus, but they have a couple of things in common—they are innovative and unique. We recently visited with three groundbreaking members of the vibrant San Diego biotech community.

Illuminating the Way

The largest life sciences company in San Diego, and the fifth largest overall in market capitalization, is Illumina, where researchers are developing technologies to help unlock the secrets of the human genome. The company’s sophisticated products facilitate the correlation of genetic variation and gene function with disease states, so those who have their DNA analyzed can discover their predisposition for specific ailments.

“There’s an energy built into what we do, because all of us have been touched in some way by disease in our families,” says Jay Flatley, 56, Illumina’s president and CEO. “We realize we’re working on technology that has the potential to save lives, allow people to live healthier lives and ultimately even lower medical costs. It’s really amazing.”

Most of Illumina’s revenue comes from the three major technologies it provides: genotyping, DNA sequencing and gene expression. Researchers using the company’s “BeadChips” can determine differences in DNA coding between human, plant and animal genomes, and determine if particular genes are producing products that cause biological processes.

Since 2004, when the chips were introduced, Illumina’s technology has aided the publication of hundreds of studies focused on a variety of diseases, including breakthroughs in type one and type two diabetes, breast cancer and prostate cancer. A consumer element is also present, with individual genotyping being offered by an Illumina partner, 23andMe, in the form of reports listing genetic markers that can be linked to specific diseases.

“Ultimately we believe genetic analysis will be a diagnostic tool, but today we consider it more educational, perhaps providing an early warning signal to get checked out,” Flatley says. “I predict that 15 years from now, genetic sequencing will be done when babies are born, so blueprints can be developed for establishing appropriate health regimens.”

Celebrating its 10th anniversary this year, Illumina has nearly 1,500 employees and is publicly traded on NASDAQ (ILMN). Its rapid growth is reflected in both Forbes’ 2007 No. 1 ranking as the fastest-growing technology company and by the construction of an 85,000-square-foot addition to its Towne Centre Drive campus. Plus, it has expanded its global commercial sites in the U.K., Australia, Singapore, China and Japan. Revenue is also on the rise, expected to increase from almost $370,000 in 2007 to more than $550,000 this year.

Blood Sugar Magic

Working with human embryonic stem cells, coaxing them into becoming insulin-producing cells, consumes the researchers at Novocell, which is dedicated to creating, delivering and commercializing cell and drug therapies for diabetics. Beta cells control the production of insulin, so cell therapy—administering new beta cells—should free diabetics from needing to take insulin shots and reduce the severe complications that diabetes can cause.

“We took a tremendous step forward earlier this year by showing our ability to generate insulin-producing cells in diabetic mice,” says Alan Lewis, Ph.D., 62, Novocell’s president, CEO and director. “If we’re able to do the same thing for people, it will transform the way diabetes is treated. We’ll be able to administer cells into type 1 diabetics by injecting them under the skin or into the liver, which will maintain blood sugar for one to two years, at which time new cells would be administered.”

Lewis acknowledges that there is some controversy surrounding the use of embryonic stem cells for research, but he says the cells Novocell uses are donated; they otherwise would be considered medical waste. The replicative capacity of stem cells makes them uniquely suited for regenerative medicine, a burgeoning and tremendously exciting field.

Commercialization of Novocell’s solution is still a ways off. Clinical trials using insulin-producing cells in combination with cell encapsulation technology are expected to begin in 2011. With an eye toward a manufacturing future, the company is currently seeking a corporate partner with experience in that arena to help carry the weight.

To date, Novocell has relied on loyal investors and grants from organizations such as the Juvenile Diabetes Research Foundation to fund its operations. Founded in Irvine in 1999, the company merged in 2004 with San Diego’s Cythera and Bresagen of Athens, Ga., where a small staff remains, and relocated to San Diego that same year. Its local headcount today is 43.

“We recognized the vitality and excitement that are particular to San Diego, as well as the fact that the area offers a ready supply of both young and seasoned talent,” Lewis says. “This is an incredible place to do research due to the proximity of its tremendous local institutions.”

Woods’ Biotech Sequel

When Randy Woods, 56, was approached by Merck to acquire his company, NovaCardia, one of the stipulations of the deal was that it excluded the drug being researched to treat atrial fibrillation. One day after the sale was completed, in September 2007, Woods’ new venture, aptly named Sequel Pharmaceuticals, was born.

“At NovaCardia, we focused on two areas underserved by the drug community—congestive heart failure and atrial fibrillation,” Woods says. “A lot of research has been done in those areas, but so far no one’s found anything that works.”

That soon may change, as Merck is in Phase 3 of clinical trials for its congestive heart failure drug, and Sequel is nearly finished with Phase 2 clinical trials for the atrial fibrillation drug currently called K201. Purposely operating “lean and mean,” venture capital–backed Sequel has just nine San Diego employees; it contracts out manufacturing to two European sites.

“Our initial focus is developing an intravenous formula for hospitals to use when treating acute instances of atrial fibrillation, when the heart is pumping so quickly that it becomes inefficient,” Woods says. “We have also initiated a Phase 1 clinical trial for an oral form of the drug.”

Woods estimates that Sequel’s drug is three years away from being marketed, if all goes well in clinical trials. The drug’s potential has already generated some interest in the company being acquired, so it may be that Sequel won’t be the organization that commercializes it. Acquisition is one of the highest compliments a biotech company can receive, since it is more common for millions to be spent on the development of drugs that never see the light of day.

 

Biotech Remains Strong

Earlier this year, Ernst & Young (E&Y) released its 2008 Global Biotechnology Report, revealing robust investment in the biotech industry. Even the recent economic slowdown hasn’t had a large effect on funding and mergers and acquisitions throughout the local, national and even global biotech industry. If biotech isn’t recession proof, it sure has seemed to prove recession resistant. Here are a few telling stats from the E&Y report.

• Venture financing reached an all-time high in 2007 with global investment totaling about $7.5 billion. This was fueled by a record total of $5.5 billion invested in the United States, alone.

• The U.S. biotech industry came closer to aggregate profitability than in any previous year.

• Deal making reached new heights in 2007. In the United States, the total potential value of deals announced during the year—including mergers, acquisitions and strategic alliances—was close to $60 billion, outdistancing all other years by a wide margin.

• Public biotech company revenue rose by 8% in 2007 globally.