Every industry needs its anchors, the companies that everyone looks up to as models of success. Think Apple, GE, Boeing. Biotech is no different, as it has been defined by trailblazers like Genentech, Genzyme, and more.
But if you look around, biotech is clearly losing its anchors. And this worrisome trend isn’t just happening in one or two places—it is playing out in most every regional cluster where the industry has grown up in the past 30 years.
Think about the headlines you’ve seen the past few weeks. In San Diego, the biggest independent biopharma company, Amylin Pharmaceuticals (NASDAQ: [[ticker:AMLN]]), just got bought. Same story in Washington D.C., where Human Genome Sciences (NASDAQ: [[ticker:HGSI]]) got acquired. Seattle, which I call home, essentially watched Dendreon (NASDAQ: [[ticker:DNDN]]) fritter away its last real chance to grow into our region’s biotech anchor.
You might ask why this matters, since you could chalk this up to a few anecdotes in each place. The health of regional biotech clusters in the U.S. is usually measured by empirical metrics like federal grant funding, patents, venture capital investments, number of companies, revenues, and stock market valuations. All of those things matter. But I’m also a believer that there are intangibles to regional success, the kinds of things those measurements can’t capture. One of these intangibles is that every thriving U.S. biotech hub needs an “anchor tenant.”
An anchor tenant is like one of those companies mentioned above—the former Genentech, the former Genzyme. A true biotech anchor tenant employs a lot of talented people. It provides good wages and benefits. It’s independent, with local executive management. It’s profitable. It’s diversified with a number of kick-ass healthcare products, so one stumble with one product can’t kill the whole company. It has inspirational leadership, and a stimulating work environment that draws future entrepreneurs, executives, and venture capitalists who learn things you can’t learn in any graduate school. It provides a success template for little companies to follow. It has the money to support a regional network of skilled service providers that all companies in the region depend on—lawyers, accountants, real estate pros. It generously donates money to worthy causes in the local community, especially research and education.
Maybe just as important, a biotech anchor tenant provides public visibility and becomes a source of regional pride and support. It says to the community ‘we have a world-beating company in our backyard.’ You can’t expect the broader public to get excited, or support an industry in any way, when the local area only has 100 little bootstrapped companies no one has ever heard of.
If you look around at the major biotech hubs in the U.S., a few true anchors still exist. Boston has seen Biogen Idec (NASDAQ: [[ticker:BIIB]]) get its mojo back. Vertex Pharmaceuticals (NASDAQ: [[ticker:VRTX]]) is clearly emerging as an anchor. The San Francisco Bay Area has Gilead Sciences (NASDAQ: [[ticker:GILD]]). The New York/New Jersey area has Celgene (NASDAQ: [[ticker:CELG]]), and an up-and-comer in Regeneron Pharmaceuticals (NASDAQ: [[ticker:REGN]]).
But the story of the past few years has been more about regions losing anchor tenants than it has been about building up new ones. Genentech, the longtime bellwether of Bay Area biotech, is now part of Roche. Genzyme, the pillar of Boston biotech, is part of Sanofi. MedImmune, the onetime standout in Washington D.C., is now part of AstraZeneca. The Big Pharma parent companies may say all the right things, but the culture of those organizations after the takeovers isn’t the same.
When you look at the next layer down, at the companies with potential to serve as longstanding anchors for their regions, the list is short. In the San Francisco Bay Area, there’s BioMarin Pharmaceuticals (NASDAQ: [[ticker:BMRN]]) and Onyx Pharmaceuticals (NASDAQ: [[ticker:ONXX]]). San Diego has Illumina (NASDAQ: [[ticker:ILMN]]), but that’s a little different as a toolmaker, not a drugmaker. Seattle has Seattle Genetics (NASDAQ: [[ticker:SGEN]]).
But Washington D.C. has no obvious contender to step up and fill Human Genome Sciences’ shoes. Neither does Research Triangle Park, NC. The New Jersey and Philadelphia areas have been shedding jobs left and right, suffering wave upon wave of Big Pharma layoffs.
The new biotech companies of today don’t aspire to grow up to become Genentechs or Genzymes, because investors have learned it involves too much time, money, and risk. Entrepreneurs have to think lean and mean, relying on sprawling networks of contractors, if they want to scrape together a few million bucks, for a few years, to pursue a big idea for healthcare. But when you lack anchor biotech tenants in all of these regions, you’re losing the essential training grounds where people get the experience they need to be successful in new companies.
Venture capitalists have long sought people with names like Genentech or Genzyme on their resumes because they knew those companies were magnets for bright, ambitious young people. Once there, these bright young people could learn the whole mosaic of biotech: How R&D, sales and marketing, manufacturing, and every other function needs to coalesce at a successful company.
While there are still quite a few alumni from companies like that whom VCs can confidently back, you have to wonder where the investment-grade management talent will come from in the future if they aren’t learning the ropes at a real anchor company.
“Most people who work at big companies aren’t right for startups,” says Bijan Salehizadeh, a San Francisco-based managing director with NaviMed Capital. “But there are some companies—I’d put Genzyme, Genentech, and Intuitive Surgical on the device side—into the category of flagship companies. As a VC, you know the people who work there and thrive there and grow their career there are probably going to be good startup people. That kind of pedigree is really important.”
Salehizadeh has seen the importance of anchors during his time in the Bay Area, and also earlier in his career when he worked in Boston for Highland Capital. Like most VCs, he subscribes to the idea that management talent is the most important factor in determining whether a company will succeed—even more important than the technology a company starts with. People of that caliber don’t
