Monday, Aug. 4, 2008 | San Diego is home to the third largest concentration of biotechnology companies in the world, behind the Bay Area and Boston. It’s an impressive claim that industry insiders say is the result of two major forces: the cluster of world-class research institutes that sprang up more than 40 years ago on the Torrey Pines Mesa and the success of one local company that fostered a generation of gutsy entrepreneurs with the money and expertise to start new companies.

Some in the industry though are growing increasingly worried about the ability of San Diego to remain a viable biotech stronghold if the area can’t provide the infrastructure needed once research leaves the university laboratories and is ready to be commercialized. Lucrative companies could decide to move or open spin-offs elsewhere, they say, in one of the many regions worldwide vying for their own biotech cluster.

Questions have arisen about whether the area’s traditional strategy of relying on the scientific prowess of academia will be enough in the future. On the flip side, long-time industry insiders argue that San Diego is a hotbed of talent, an asset that can’t easily be replicated elsewhere.

“What we’ve got to do to keep the fire burning at home is just continue to build research capacity, transfer the research out and get it funded,” said Joe Panetta, chief executive officer of Biocom, an industry trade group. “We’re doing great and we can keep it up.”

By 2007, venture capitalist investment, the lifeblood of biotech start-up companies, reached $1.68 billion in Southern California, according to Biocom, an industry trade group. In San Diego alone, the life science industry, a broader umbrella which also includes medical device firms, is responsible for nearly $9 billion in annual economic impact. The cluster has more than 44,000 employees at some 700 companies, including 33 publicly traded life science companies with a total market value of nearly $25 billion, according to San Diego Association of Governments estimates.

But there has always been competition, and more and cities across the world are vying for a piece of an industry that was once the exclusive domain of the Bay Area, Boston and San Diego.

Such figures have made San Diego a case study for cities around the world that are investing millions of dollars to lure talent and foster the creation of new biotechnology clusters. Last month, for example, Massachusetts signed into law a $1 billion incentive package to spur an expansion of biotech development to areas outside of the Boston. China has more than 10 high-tech business parks and Florida recently invested millions of dollars to build a biotech hub, investing a chunk of the money in new labs and offices for three La Jolla-based research institutes: the Scripps Research Institute, the Burnham Institute for Medical Research and the Torrey Pines Institute.

Panetta and other industry leaders said San Diego biotech community is an economic force it deserves to be nurtured so the industry can continue to grow and expand locally. The ultimate goal of most academic research is to find therapies and medicines to stem diseases, but the process of translating science into cures requires funding, a pro-business climate, ample industrially-zoned land, a steady water supply and a solid energy infrastructure. Those factors will be particularly critical to the competitiveness of San Diego’s market in the long-term, Panetta said.

“The cost of doing business here is a concern,” he said. “We’ve got to make sure there’s a good, reliable supply of power and water for industrial use.”

Still, biotech is fueled by brilliance and San Diego’s hefty stock of brainpower and prestigious research institutes could make it unlikely that the region will have to relinquish its third-place title anytime soon.

“It’ll be interesting to see if they can duplicate San Diego’s success in Florida,” said Tim Wollaeger, 65, an entrepreneur who has helped start a handful of San Diego companies. “After all, people want to live here and we’ve got the institutions. That doesn’t grow up overnight.”

San Diego’s biotech story began when research institutions such as the Salk Institute, Scripps, and the University of California, San Diego, were founded between 1955 and 1965. With the academic foundation in place, civic and business leaders in 1965 made the pivotal decision to designate Torrey Pines Mesa for science and research development, hoping to create new industries and companies with high-paying jobs.

By all accounts, the effort paid off.

Tempted by the emerging opportunities, throngs of researchers and students began pouring into San Diego. In the early 1980s, the region was infused with a surge of complementary firms — patent attorneys, headhunters, venture capitalists and public relations firms that were anxious to support entrepreneurial start-ups on the road to medical breakthroughs.

The beginnings of the windfall can be traced back to a small UCSD laboratory.

In 1978, Ivor Royston was a young assistant professor studying immunology at UCSD when he drove four investors to the airport after giving them a tour of his lab. He told them how he believed his research into monoclonal antibodies could be the future of disease diagnosis, and that he and assistant Howard Birndorf wanted to start making the antibodies commercially, for things such as hepatitis testing. San Francisco venture capitalists gave them $300,000 and Hybritech, along with San Diego’s multibillion-dollar biotechnology industry, was born.

“All we had then was a makeshift sign and a subleased office,” said Wollaeger, who served as Hybritech’s vice-president in its early days.

Over the next several years, Hybritech went public and commercialized a series of diagnostic kits for anemia, different types of cancer and allergy, among others. By 1985, it had developed its legacy product, the first antibody test for prostate cancer. Market-approved in 1986, the test earned the reputation for being the most accurate way to monitor the disease, the second biggest cancer killer among American men. Known as the PSA test, it measures the blood for prostate-specific antigen, a protein that rises with the level of the disease.

That same year, pharmaceutical giant Eli Lilly paid $400 million to acquire Hybritech, creating a league of San Diego biotechnology millionaires.

The start-up company’s success fueled the explosion of venture capitalists funding companies in San Diego. Many of Hybritech’s founders and early employees who had flourished under the casual, entrepreneurial spirit of the pioneer company chose not to work for the conservative and corporate Lilly. Those executives who left after the sale formed the ranks of San Diego’s biotech veterans who went on to create or nurture scores of companies, including San Diego’s biggest biotech drug success story, Idec, which is now part of Biogen-Idec. Today, about 150 companies, nearly one-fourth, of those in San Diego have roots that can be traced back to Hybritech, according to Biocom estimates.

“There wouldn’t be a biotech industry” without researchers like Royston who went on to become venture capitalists themselves and invested locally, said Biocom’s Panetta.

At around the same time, the Cold War was winding down, defense spending had been drastically slashed and aerospace companies were closing their San Diego operations. The local economy essentially collapsed and unemployment spiraled to nearly 10 percent. As they did in the mid 1960s, civic leaders agreed to relax some of the city’s rigid regulations surrounding construction, permits and zoning in order to court biotech business. Since then, scores of other biotechs have been spawned from the science out of UCSD, the Salk Institute, the Burnham Institute, Scripps and other small, local research facilities.

The burgeoning industry first realized it needed a political voice 1991 when Biocom was formed to rally against proposed water sanctions, which would have spelled disaster for the local industry by mandating that businesses drastically cut-back water use. To avoid cuts, Biocom agreed to have its members use more reclaimed water. The cuts are the type of short-sighted public policy that Biocom, an association which now represents more than 550 member companies, wants to sidestep in coming years. The organization focuses on public policy, work force development, and capital formation.

As industries go, biotech has highly desirable qualities. It’s “green,” clean and it infuses the local economy with a well-educated, well-paid work force, advocates say. Biotechnology workers in San Diego earn an average wage of $80,000 annually, roughly 83 percent above the average pay for all jobs, according to the San Diego Regional Economic Development Corporation. But a thriving biotech community requires long-term infrastructure planning because academia, industry and investment are intimately linked.

In the life sciences, research institutes, medical centers and government agencies collaborate to advance science and technology into start-up companies that turn biological science into commercial applications. But there are challenges. The region must provide plenty of affordable housing, public schools with good reputations, unclogged roadways, open recreation space and convenient public transit n typical quality of life concerns, a spokesman for the San Diego Regional Economic Development Corporation said.

From a real estate perspective, San Diego, a city where land is at a premium and stringent land-use regulations limit industrial space, biotech companies have a difficult time finding workable space. The firms tend to need expensive offices and laboratories with tailored features, such as higher ceilings, fume hoods, high-capacity power grids, heavier floor-load capacities and advanced mechanical, electrical, ventilation and plumbing systems.

Also, the future success of San Diego’s hub is heavily reliant on attracting new investors, Panetta said. To that end, Biocom is sub-leasing office space in its building to non-local investors so they can have a home in San Diego.

“We can get real creative when we get desperate,” he said,

Biocom is also holding conferences and showcasing local talent in an effort to exploit the region’s close proximity to the Pacific Rim. Panetta said investors in Australia, China, Japan and Singapore have an increasing interest in funding research coming out of San Diego.

But perhaps most important is San Diego’s rooted history in biotech. In the early days, the research institutes and private enterprises grew together and many symbiotic relationships persist in the community today.

Michael Porter, noted author from the Harvard Business School, has cited San Diego for having a seamless collaboration among public, private and academic institutions in the region.

First, there’s been a sort of coziness between San Diego’s top-notch academic institutions and for-profit industries since the successful early days of Hybritech. Although the academic community was wary of the idea at first, Hybritech eased the way for future collaborations.

Also, the four major academic institutions routinely pool talent and research to make headway on projects. The best example may be the San Diego Consortium for Regenerative Medicine, a nonprofit established in 2006 to conduct joint research and training programs in stem cell research, largely considered to have the potential to heal major diseases.

“There’s something very special about the synergy and collegial spirit among the players here,” said Duane Roth, chief executive officer of Connect, a nonprofit that assists fledgling companies.

“We have had similar comments about our collegial atmosphere from venture capitalists, institutional investors, Nobel prize winners, lawyers, accountants and others after their first in-depth encounters with our biotech community.”

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