A time of turmoil for local biotechs

Throughout 2007, Seattle's biotech industry has been running just to stand still.

It could have been a blockbuster year. Many companies awaited landmark clinical results that, if successful, could have boosted their stock and lifted the struggling local sector into national prominence.

But it didn't play out that way. The market value of local companies climbed some 25 percent to $4 billion early in the year as investors wagered on good data. But failed tests, delays and other bad news disappointed observers and investors in the area's publicly traded firms.

As of last Friday, the market capitalization of biotech companies based here was $3.1 billion — down from $3.2 billion at the start of the year.

(That figure does not include Bothell-based Icos — whose operations were acquired by Indiana-based Eli Lilly for $2.1 billion in January and have been mostly shut down.)

In contrast, the nationwide biotech industry is up from last year, driven by pharmaceutical companies' strong interest in acquiring smaller firms to replenish their pipelines. A biotech stock index developed by San Francisco-based research firm Burrill & Co. is up 17.5 percent since the start of the year.

Some local companies, such as Seattle Genetics, have excelled in the market. But, as a whole, the local sector has been moving "three steps forward, three steps backward," said Paul Latta, an analyst with McAdams Wright Ragen.

Market woes may have contributed to the zigzagging performance, Latta said. But these wild swings are accentuated by the fact that most local companies are still in the developmental stage. With no earnings from commercial products, their share price relies on investors' fragile perceptions.

"There's a lot of room for interpretation as to what the stock is worth," Latta said.

The volatile Wall Street footprint of local biotechs underscores the area's struggle to establish itself as a major biotechnology center on par with San Francisco or Boston. Publicly traded companies can anchor a growing community by attracting capital, labor and media attention.

The region once had publicly traded companies worth billions, such as Immunex and Icos, but these were bought up. Industry observers hope that today's budding companies will one day expand to become the next biotech giant. But they may have to wait.

"The data hasn't been good for companies locally," said David Miller, an analyst with Seattle-based Biotech Stock Research.

The region's biotech industry is underpinned by major research institutions, strong venture-capital activity and large local operations owned by firms such as Amgen, based in Thousand Oaks, Calif. This is reason for optimism, some say.

"I'd be totally stunned if we didn't find ourselves dramatically larger in five years," said Jack Faris, president of the Washington Biotechnology and Biomedical Association.

Biotech stumbles

Dendreon, a Seattle-based maker of anti-cancer products, is the poster child for what could have been.

The company's prostate-cancer treatment, Provenge, attracted nationwide attention from investors last spring. In the weeks after a Food and Drug Administration (FDA) panel recommended its approval in March, shares more than quadrupled in value and the company's total market value ballooned to exceed that of ZymoGenetics, Seattle's largest independent biotech.

Those hopes were shattered in May when the FDA, instead of granting Provenge its blessing, requested more data about the treatment's efficacy, sending the stock into a tailspin.

ZymoGenetics, Seattle's oldest biotech, also had high hopes for this year. Its first commercial launch was expected to occur last month, after receiving FDA approval for a surgical-bleeding-control product, something many analysts thought was a slam-dunk. The company had entered into a distribution deal with pharmaceutical giant Bayer for the product, known as recombinant thrombin, or rThrombin.

But in August the company announced that the FDA requested more information about rThrombin's manufacturing process and extended the approval deadline until January. Even a few months' delay will allow a competing product to steal some of rThrombin's thunder by entering the market first.

"We were very confident things were going to go well," said ZymoGenetics' Chief Executive Bruce Carter at a conference call in August.

ZymoGenetics is still ramping up its sales force in preparation for the launch. It expects its artificial form of thrombin to surpass competing products of human and animal origin, which the company says are more risky.

But the delay — and a recent petition to the FDA by rival King Pharmaceuticals not to approve ZymoGenetics' product — adds some uncertainty.

Bothell-based Sonus Pharmaceuticals was cast into the spotlight in August as investors thought results of a clinical trial on its Tocosol Paclitaxel cancer drug would give the company a boost.

The results were disappointing, and Sonus pulled the plug on the product. Its shares dropped 84 percent.

Last week, the Nasdaq Stock Market warned the stock would be delisted within 180 days if it keeps trading below $1. The company said Wednesday that it was cutting 16 jobs, or about a quarter of its work force.

Seattle's Trubion had also been gaining momentum from positive reviews from analysts, but the company's shares dropped 30 percent after results for a clinical trial on the company's lead therapy failed to prove more effective than competing drugs.

Nastech Pharmaceuticals, whose market capitalization had been rising gradually throughout the year, lost more than half its value after it announced last Wednesday that consumer-products giant Procter & Gamble had pulled out of a deal to jointly develop an osteoporosis treatment.

As of Friday, the company was worth about $163 million, down from $358 million on Nov. 5, before P&G's rebuff was announced.

Targeted Genetics, another Seattle company, took a heavy blow when a 36-year-old Illinois woman, enrolled at a clinical trial for its arthritis therapy, died shortly after being injected with the product.

Recent data suggest that the therapy is not to blame, but an investigation is continuing and the clinical trial is on hold. On Friday, the firm was worth about $40 million, 25 percent less than at the end of June.

Troubles have not been limited to public companies based in the area. The local operations of Amgen have suffered some fallout from the company's global ailments over safety concerns on its anemia drugs.

Some 50 employees were laid off from Amgen's 1,100-strong Seattle-area work force, and others have left voluntarily. And a much-touted expansion of the company's Helix campus in Elliott Bay has been put on hold, the company confirmed Friday.

But not all is gloom, as some companies saw their fortunes improve. Bothell-based Seattle Genetics' value has almost doubled to about $700 million since the company entered a lucrative licensing and development deal with biotech-giant Genentech in January.

The company, which is now the area's second largest independent biotech, is aggressively working on its pipeline of therapies.

Many industry observers say that the local sector remains strong, despite setbacks by many publicly traded companies.

The startup scene is active, with seven new companies joining the ranks of the Washington Biotechnology and Biomedical Association this year, Faris said.

Job scene

Despite layoffs by Icos and, most recently, Amgen, the employment situation looks promising, as some companies "have openings and are having a hard time filling them," he said.

Two firms incubated in the Accelerator — Allozyne and Spaltudaq — have found willing investors, raising nearly $30 million each, and research institutions — such as the Institute for Systems Biology — keep getting research grants.

The area remains a good environment for biotechnology, says Seattle Genetics' Chief Executive Clay Siegall. The fact that the region's public companies seem smaller is an indication of the biotechnology business cycle. It's been a good year for local startups, and that's a sign of hope, he says.

"Only three years ago Seattle had a lot more established biotechs," Siegall said. "But I think there's a lot of work coming up, so that in the not too distant future, you'll see a lot of companies really make it."

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