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Tuesday, April 19, 2005 | This is part two in a two-part series. Read part one.

The trend of big pharmaceutical companies buying biotechnology companies will continue as the larger companies race to fill their product pipelines. The end result for San Diego should be an increase of jobs in the pharmaceutical-biotech sector and more resources for biotechnology companies. Local biotechs are also looking to large pharma to fill in the critical funding gaps left by cautious investors who tend to shy away from risky biotech startups. The uncertainty from the investment community, however, leaves more room for pharma to tap directly into early innovation.

“Even a company like Pfizer can’t pursue all the various ideas and opportunities out there,” said Catherine “Kitty” Mackey, senior vice president of Pfizer Global Research & Development in San Diego. “So when another company has entered an area that looks promising, it’s going to be of interest to us.”

The commencement of San Diego’s biotech mergers and acquisitions was in 1986 with the sale of Hybritech to Eli Lilly. That was followed by Warner-Lambert’s purchase of Agouron. Since then, dozens of San Diego biotechs have either merged with or been sold to other companies

After all, it’s not necessarily a bad thing when people in this business lose their jobs – they just start other companies. Take, for example, the acquisition of Hybritech. Some of the top executives and scientists from Hybritech have started more than 60 companies in San Diego since then. These include Dura Pharmaceuticals, IDEC, Gen-Probe, Salmedix, GenOptix and Nanogen.

“These aren’t losses for the community,” said Stan Fleming, co-founder and managing member of Forward Ventures, a San Diego-based life science and health care investing firm. “It’s part of a healthy turnover and development of the industry. Change is good for the industry. Holding still is not good. And these guys are not holding still, I can tell you that.”

Duane Roth, executive director of UCSD Connect, a San Diego-based tech and life science nonprofit that has helped nurture San Diego’s biotech community, agreed that acquisitions like the Hybritech sale spawn economic development in the region.

“It’s interesting that many people I have met whose companies have been acquired are still in San Diego,” said Roth, former CEO of Alliance Pharmaceuticals. “I met a guy the other day whose company was acquired, and the headquarters was moved to Philadelphia. But he didn’t want to move so he’s staying here, and he’s starting a new company here. People go out of their way not to move from San Diego.”

When a company moves its headquarters out of town as a result of a merger or acquisition, it doesn’t always reflect negatively on the local economy. Take, for example, San Diego-based IDEC Pharmaceuticals, which merged with giant Biogen last year. Biogen IDEC, as it is now called, moved its headquarters to Boston but kept a large manufacturing and R&D presence here. The company built a $400 million manufacturing facility in San Diego, as well as a new research facility. The merger helped IDEC keep its position as the third largest biotech in the industry, with a market cap of $11.8 billion.

“The merger of IDEC and Biogen was a good thing because it allowed IDEC to grow in San Diego,” said Joe Panetta, president and CEO of Biocom, the life science association in Southern California.

Panetta said large pharmaceutical companies also provide San Diego opportunities for employment training in areas like applied research.

“The post docs and the other folks who come out of UCSD and the folks in the biotech companies who are looking for opportunities to move up can go to the pharmaceutical companies,” he said. “Some of those folks will go back to the biotech companies with new skills. The other side of the coin is large pharma gives the biotech industry access to senior executives who have solid training in management.”

For Fleming, big pharmaceutical companies are critical to the viability of investors. The bottom line: The industry needs enough money to push drugs through clinical trials and to provide profits for investors, who pour money back into the biotech sector.

“The fact that the pharmaceutical companies can provide liquidity for the investors is a hugely stabilizing influence for the marketplace and a vitally important part of the equation when investors start figuring out the potential for generating returns in this industry,” he said. “Without the support of the pharmaceutical industry, the bioventure community could not survive. Their presence and their active involvement with us and our companies is critical. We should do everything we can to cultivate their participation in this community.”

Andrea Siedsma is a writer in San Diego.

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