Valley Struggles to Create Biotech Cluster

When it comes to the biotech industry, the greater Valley area is simply the ugly stepchild. Despite being home to Amgen Inc. — the world’s largest biotech firm with a market value of about $49 billion as of Nov. 3 — the push to create a true biotech cluster remains stuck in neutral, hampered by a lack of homegrown venture capital and overshadowed by Silicon Valley to the north and San Diego to the south, industry experts say. Amgen’s announcement last month that it would lay off 226 local research and development staff, about 4 percent of its Thousand Oaks workforce, laid bare the lack of a thriving industry and the likelihood that many would have to look elsewhere for employment. “If I got laid off, can I run into a bar across the street from Amgen and run into VC’s and other entrepreneurial types?” asked Joel Balbien, a biotech and green-tech consultant and managing director at GreenTech Consulting. “It’s possible, but a lot less likely than in San Diego, Silicon Valley or around Boston.” In the greater Los Angeles region, there are four biotech venture companies, including Amgen’s fund, according to PricewaterhouseCoopers LLP. Meanwhile, there are 31 based in Silicon Valley and eight reside in the San Diego area, which also is home to several outside firms that maintain offices there. Additionally, the region has 13 active venture-backed biotech firms, including two in Camarillo and one in Calabasas. Comparatively, there are 77 in the San Diego region, 145 in New England and 151 in Silicon Valley, according to PricewaterhouseCoopers. Many companies have launched out of local university labs only to be lured away by ventures based in the three biotech powerhouses. Because early-stage backing requires heavy involvement, venture capitalists often like to keep start-up companies close, said Samit Varma, a partner at Anthem Venture Partners, a Santa Monica venture firm that invests in technology and bioscience start-ups. So when local entrepreneurs look for funding a move is often in their future, he said. “That is a big problem for L.A.,” Varma said. “We need to have a larger capital base here, which would then spur more new companies.” The tale of two companies Westlake Village-based Cynvenio Biosystems Inc., which is developing technologies that allow doctors to target cancer therapies to individual patients, was founded in 2008 and evolved out of research at the University of California, Santa Barbara. The biotech company, which focuses on cancer diagnostics and now has 20 employees, broke off in 2008 from CytomX Therapeutics, which also had its start at the University of California, Santa Barbara. CytomX is a South San Francisco company that is developing antibodies that will only be activated on the tissues it is designed to treat. When it came time to hunt for financing to back their research, the two companies employed different funding strategies, which eventually took them to different parts of the state. Cynvenio decided not to pursue large rounds of venture capital — though the company is partially financed by venture capital money from funds provided by Anthem, chief executive Andre de Fusco said. The company moved to Westlake Village in late 2008 to be near the University of California, Los Angeles, and the talent pool around Amgen, de Fusco said. From 2009 to 2010, the firm received $4 million in mostly angel funding and some venture capital. CytomX, on the other hand, went after a large round of venture capital. The company raised $30 million in 2010, primarily from Boston-based Third Rock Ventures LLC, which has a San Francisco office. Third Rock’s San Francisco presence, as well as the support system available in Silicon Valley — including potential employees, venture capitalists, consultants and legal specialists — spurred the company’s move from Santa Barbara to South San Francisco in late 2010, said chief executive Sean McCarthy. “The partners (at Third Rock Ventures) that get involved with companies really like to get in and roll up their sleeves … and that is a whole lot easier if the company is in their backyard,” McCarthy said. “Their operating model really mandates they invest in companies that are in their backyard.” What would have happened if Cynvenio had jumped headfirst into venture funds? “I think we would have been moving the company to Boston or San Francisco,” de Fusco said. ‘Chicken and the egg’ Outside venture firms don’t want to put roots or invest in Valley area companies until there is a “significant mass” of firms and a true support system to nurture start-ups, said Brent Reinke, chairman of the Bio Science Alliance, a nonprofit seeking to create a life science cluster along the 101-Corridor. It’s a “chicken and the egg” problem, said Reinke. The make-up of California’s biotech industry can largely be traced back to three companies: Thousand Oaks-based Amgen, Silicon Valley-based Genentech, and San Diego’s Hybritech, said Steven Casper of the Keck Graduate Institute of Applied Life Sciences of the Claremont Colleges, who is writing a book on how biotech clusters form. Tumultuous histories at Hybritech and Genentech caused employees to break off and establish their own companies, which led to clusters. Meanwhile, Amgen has been remarkably stable. Former workers have left the company in recent years to launch start-ups such as Kythera Biopharmaceuticals Inc. in Calabasas. But Amgen has largely benefited from its success and its “monopolies” on certain drugs such as Epogen, and employees have, for the most part, stayed put, Casper said. The lack of local venture capital hinders a cluster from forming, but he and others say it’s not the region’s only challenge. The lack of established relationships between entrepreneurs, scientists, managers and financiers is especially detrimental to the industry’s growth in the greater Los Angeles area, Casper said. “People change companies left and right (in Silicon Valley and San Diego) and they have extremely strong networks… and they tap those networks to start new companies when new ideas come along,” Casper said. Here, in the greater Los Angeles region, the culture of isolation among those in the biotech industry may be on the cusp of change. With layoffs in recent years, Amgen is becoming more like a typical biotech company, raising the possibility former workers could help spur development of a cluster, Casper said. And outside venture capital firms are becoming more willing to invest, although the challenging economy has limited available funds, said Reinke, a partner at Musick, Peeler & Garrett LLP’s Westlake Village office. “I think they see the existence of a very good talent pool and at least a few good examples of companies in the area who have been funded and are succeeding,” he said.