Biotech or bust

Pharmaceutical companies in the region are merging, and analysts expect layoffs. Where others see loss, biotech groups around the region see opportunity.

Many of the world’s largest pharmaceutical companies have facilities in the Philadelphia region. By the way — they’re all starting to merge with one another, and people are getting nervous, about layoffs. But the shakeout in Big Pharma could spawn opportunity in a growing, and related sector of the regional economy.
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Soon, Merck and Schering Plough will combine to form a mega drug company. So will Pfizer and Wyeth. Big pharmaceutical businesses keep gobbling up one another.

Tang: There are a lot of pharma people that have been displaced as a result of that.

Steven Tang is the CEO of the University City Science Center, a biotech research park in Philadelphia. He says thousands of talented scientists could be on the job market in the coming year.

The Merck-Schering company will lay off about 15 percent of its staff; the Pfizer-Wyeth company about 20 percent.

Tang: When we have all those people that are without jobs, how do we repurpose them into productive ventures? Obviously we are counting on a
number of those folks being entrepreneurs and having successful ventures.

So there’s the idea. Take these experienced, educated researchers and funnel them into biotech companies. These companies do a lot of the basic research that goes into developing a drug.

Lalo (Osvaldo) Flores made that move. After nine years at Merck, he left last year and started up a three-man company called Novira.

Flores: The mission of Novira is to discover and develop novel antiviral agents. We’re going to be focusing initially on hepatitis B and HIV.

If only starting up a biotech firm was as simple as having a good idea.

Flores: To do that you need capital.

Novira got its start-up capital from BioAdvance, which is a state-funded investment group. It started several years ago with $20 million to invest, and has helped launch a few dozen biotech companies. Barbara Schilberg is the CEO. She says Flores is exactly what she’s looking for when funding entrepreneurs.

Schilberg: Where you have the standards and the incredible experience of the large, people coming out of pharma, but combine it with the flexbility and
innovation of the small companies. And that combination is the most powerful combination we can look for.

Schilberg actually sees the mergers and job losses as a way to expand biotech in Philadelphia. While the region dominates overall in the life sciences — mostly because of its teaching hospitals and those big drug companies — it doesn’t compare to Boston, San Francisco or Raleigh, North Carolina when it comes to small biotech businesses.

Schilberg: We have the science, we have the people, we have the facilities. Really the only piece we’re missing is sufficient capital to really make an impact and move the needle on the region.

Schilberg says her own ability to invest in small companies is limited.

Venture capital groups are really the ones that provide the bulk of the funding for biotech companies. So what does a venture capitalist have to say?

Gavin: There is no way, I do not think, that the biotech industry can absorb all of these talented individuals.

Brenda Gavin is a partner at Quaker BioVentures. She says the supply of talented entrepreneurs is not the limiting factor in investing.

Gavin: I think it’s tied more to our ability to get to an exit, to sell our companies, because that’s how we make our returns for our investors.

The way that happens is typically her biotech companies sell themselves to pharmaceutical companies. And the problem?

Gavin: They’re just not buying right now, because big pharmaceutical companies are more or less in a stalemate.

But the situation is not totally dire. Gavin says pharmaceutical companies in Europe and Japan are still interested in small biotechs. And many large drug companies are interested in paying those smaller firms to do research on their behalf.

Finally, it’s not clear yet just yet how big a hit this region’s pharmaceutical job base will take in the industry shakeout. The merging pharma firms have facilities in multiple states. And Pennsylvania lawmakers are lobbying to soften the blow here.