Monday, April 18, 2005 | Part one of a two-part series. Read part two

When large pharmaceutical companies began filtering into La Jolla’s Torrey Mesa

Once looked at as rivals, large pharmas are now a welcome addition to San Diego’s burgeoning biotech scene – not only have the big boys helped grow the talent base here, they have also helped keep the biotechs alive. Being solo in the market is usually a lost cause for a small biotech, considering the tens of millions, and often hundreds of millions, of dollars and years it takes to get a drug approved by the U.S. Food & Drug Administration. Tapping into a large pharmaceutical company’s sales and distribution channels and bigger budget allows smaller biotechs to turn years of research into products and profits.

San Diego is now home to many large pharmaceutical companies, including Johnson & Johnson, Eli Lilly and Novartis. And who could miss the more than one dozen Pfizer buildings on the mesa?

“When Pfizer first came to town, I – and certainly a lot of other people – was concerned that they would essentially take away all the talent and substantially raise the cost of doing business for existing biotech companies,” said Stan Fleming, co-founder and managing member of Forward Ventures, a San Diego-based life science and health care investing firm. “That in fact has not been the case. Our little companies have been the beneficiaries of being able to recruit people. The big pharmas have attracted some of the best and brightest people. Before they came here, San Diego was the dark side of the moon in the pharmaceutical industry.”

Pfizer’s entrance into San Diego was its 2000 purchase of Warner-Lambert Co., which had bought San Diego-based Agouron Pharmaceuticals in 1999. Pfizer had roughly 1,000 employees when it set up a research and development shop in San Diego. Now the pharma giant has about 1,500 employees and contractors, and occupies over one million square feet of research facilities. Besides providing jobs in the region, Pfizer is ranked No. 3 in San Diego for Untied Way contributions and the company matches all employee charitable donations, dollar for dollar. Earlier this year, Pfizer acquired two more San Diego biotechs – Angiosyn, Inc. and Idun Pharmaceuticals.

For privately held Idun, which launched in 1993, an acquisition wasn’t essential for the company’s survival. Unlike many of its biotech brothers and sisters, Idun was not strapped for cash – just last year, the company announced a $65.6 million preferred stock private placement financing deal.

“The way you create value today is to move products to clinical development,” said Idun president and CEO Steven Mento. “We kept our options open. A merger or acquisition wasn’t a planned outcome. It was something that just happened.”

In the past, mergers and acquisitions were looked at as a necessity in the biotech business, Mento said. That’s not the case today for some.

“A company like Idun that is very strong and very well financed is part of the attraction for a pharmaceutical company,” he said. “I don’t think they’re going for the weak links.”

Since large pharmaceutical companies are looking to fill their own pipelines and meet their growth needs, smaller biotechs now have more leverage when brokering deals, Mento added.

“It’s a seller’s market so the small companies are going to demand a lot better terms than they did in the past,” he said.

Find out some fast facts on San Diego biotech companies.

Andrea Siedsma is a freelance writer in San Diego.

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