Biotechs poised to survive

For the local biotechnology industry, 2009 is shaping up to be a year of grief that could thin out the sector's middle tier — the small publicly traded companies.

But at both ends of the scale, things are looking better: the research-oriented startups seem poised to survive the downturn, and long-awaited clinical results could propel larger companies like Dendreon to stardom.

To some analysts, the shakeout is part of a cleansing similar to the aftermath of 2000's dot-com bust.

"The companies that don't have a place to go, just go out of business," said David Miller, an analyst with Biotech Stock Research, a local research firm.

That would leave a landscape that's more true to the region's real strength: research at startup companies fueled by venture capital.

For instance, despite the financial crisis, the Accelerator, a local incubator based in Seattle's Eastlake neighborhood, created three firms last year. In December, VLST, an Accelerator-bred firm, inked a big-dollar deal with Novo Nordisk to develop drugs against autoimmune and inflammatory diseases.

"Seattle is really a town of development-stage biotechs," Miller said.

Seattle has also spawned sizable biotechs, such as Immunex and Icos, later acquired by bigger fish after their products became blockbusters. Now local midsize companies ZymoGenetics, Seattle Genetics and Dendreon are hoping for that level of success — and each could make significant strides in 2009.

Penny-stock range

Several of the region's publicly traded biotechnology and biomedical companies have seen their shares drop to penny-stock range.

Nastech Pharmaceuticals, which changed its name to MDRNA last year after its clinical program derailed when Procter&Gamble pulled out of a lucrative research partnership, traded at 29 cents on Friday. In 2007, the stock reached $15.

Even in the absence of dramatic disappointments, the financial turmoil drove down the value of other companies.

Oncothyreon, which moved to Seattle from Calgary, Alberta, seeking a better investment climate, saw its shares drop to 91 cents on Friday from an annual high of $4.70.

Trubion, a once-hot biotech specializing in therapies to treat autoimmune diseases and cancer, traded at $1.40, down from a yearly high of $12.60.

Another local company, Sonus Pharmaceuticals, merged with a Canadian biotech in August after its lead product failed at clinical trials.

But few cases are more telling than Targeted Genetics, founded in 1989. The company focuses on gene therapy, a cutting-edge sector of biotechnology that has so far yielded little.

The company's shares fell dramatically in 2007 after a patient died in one of its clinical trials, and it never recovered even though a panel of scientists appointed by the federal government determined that the death was not the company's fault. Recent positive results in the treatment of a rare congenital sight ailment have been insufficient to raise the stock price.

The company has cash to last through the first quarter of 2009. Its stock traded at 27 cents on Wednesday.

Targeted Genetics' founding chief executive, H. Stewart Parker, had been a mainstay of the Seattle biotechnology community — but she left the post in November. In December, the company cut its payroll costs by 25 percent.

The ultimate step was taken by Northstar Neuroscience, whose treatment to improve hand and arm function in stroke victims failed in early 2008. It decided earlier this month to dissolve and split its remaining cash among shareholders.

Startup haven

Privately held startup companies, however, have been humming throughout the financial crisis.

Last month VLST scored a $12 million deal with Danish pharmaceutical giant Novo Nordisk, which recently set up an autoimmune and inflammatory disease research center in Seattle.

The Accelerator last year launched three new Seattle companies — Recodagen, GPC-Rx and Mirina. After snaring a new investor — Pharmaceutical Product Development, of Wilmington, N.C. — the trend will continue, said Accelerator Chief Executive Carl Weissman.

"I'm fairly confident that the Accelerator is going to make 1 or 2 investments this year," he said.

Light Sciences Oncology, a firm that canceled its initial public offering last February, managed to raise $10 million from venture capitalists in July. Private investors provided Redmond-based Healionics — which manufactures material for implants — with a $2.6 million boost in December.

In a deal that could yield big results, Bothell-based Acucela, which is developing therapies to treat blindness, signed a partnership deal in September with Japanese firm Otsuka Pharmaceutical that could potentially bring it $258 million.

Acucela got a $5 million upfront payment, and in the next 12 months plans to double its payroll to around 40 people from 22 today, said Chief Executive Ryo Kubota. The funding "is really helping us grow right now," he said.

Part of what makes the Seattle area's early-stage startup scene so vibrant is the science being produced at places like the Fred Hutchinson Cancer Research Center and the University of Washington.

"We have some great, great research institutions here," said Chris Rivera, the new president of the Washington Biotechnology and Biomedical Association.

That science also attracts big bucks that create additional biotech jobs. In November, the government of Luxembourg formally approved a $100 million partnership with the Institute for Systems Biology, a high-profile Seattle research center.

The money, distributed over five years, will increase the institution's budget by more than a third — and allow it to hire at least 20 to 30 people starting this year, said institute President Leroy Hood. (The institute employs about 220 people.)

Projects funded by the partnership will bring "many opportunities in terms of spinoffs to biotech startups," he said.

Looking forward

The most interesting developments in 2009 could come at the region's largest public biotech companies.

Seattle Genetics has weathered the financial crisis relatively well, buoyed by good results in its clinical programs and a partnership with San Francisco biotech giant Genentech.

This past week the Bothell company said it will begin a pivotal clinical trial this quarter that in 2011 could yield an accelerated application for Food and Drug Administration approval of its of its cancer treatment for Hodgkin lymphoma.

Its shares closed at $8.73 on Wednesday, down from their yearly high of $13.40.

ZymoGenetics, until two years ago the area's largest publicly traded independent biotech by market capitalization, dropped to third place as its stock deflated significantly amid sluggish sales for Recothrom, its only commercial product.

But a blockbuster deal with Bristol-Myers Squibb announced Jan. 12 could give the company more than $1 billion in payments — and provide a significant boost to the company's long-suffering share price.

Dendreon expects to see the final results of its clinical trial on prostate cancer drug Provenge by mid-2009. If the study determines that the drug extends the survival of cancer patients, the FDA could approve its launch — a rare achievement for a biotech.

If the drug is approved and becomes a hit, Dendreon would be on its way to becoming a core company for the Seattle area, much like Immunex or Icos used to be.

"I'm fairly optimistic that this year will see good things for the industry," said ZymoGenetics President Doug Williams.

Ángel González: 206-515-5644 or agonzalez@seattletimes.com