A Gloomy Outlook at Mass Biotech Council's Annual Meeting

Kind of a depressing way to start the day…

The Mass Biotech Council’s Annual Meeting began with an overview of the group’s newly-issued strategic report, which observes that biotech in the Bay State is likely to undergo a serious shake-out in 2009. According to analysis by Deloitte and L.E.K. Consulting, half of all public biotech companies in the state could run out of cash before the end of this year, and one-third to one-half of all private companies will be out trying to raise money in 2009.

By the end of the day, things hadn’t gotten much sunnier. A panel on the economic outlook for the next year seemed to conclude that things will get worse, not better, for most life sciences companies over the coming year.

“If you have cash flow, are close to cash flow, or are cash flow positive,” the outlook isn’t so terrible, said Jonathan Fleming, managing general partner at Oxford Bioscience Partners. What’s happening right now, Fleming said, is kind of like a forest fire. A lot of things will burn, but that creates opportunities for new breakthroughs, he said.

MIT Sloan School economist Ernie Berndt suggested that companies working on diagnostics and vaccines will likely feel more wind at their backs than others. But Berndt noted that while disease foundations (like the Gates Foundation or the Michael J. Fox Foundation) have been ardent supporters of drug development over the past few years, that funding seems to be slowing in the current economic climate.

There was a smidgen of good news from the panelists. Berndt said that the pathway to bringing follow-on biologics to market “is going to be much more difficult than predicted.” Fleming said Africa is an interesting market for vaccine development, mainly because the US government has been so supportive with its financial backing. Berndt said that as big pharmaceutical companies are increasingly dedicating their resources to developing blockbuster drugs, opportunities exist for small companies to come up with “niche-busters” for more focused groups of patients.

“You guys are painting a rosier picture of today, and a more negative picture of a year from now,” said moderator Bob Buderi. “The President has been saying the opposite.”

Things could be worse, quipped Frank Hatheway, Nasdaq’s chief economist: at least you’re not in real estate, or a community banker in Michigan. Not sure that made people feel much better…

The day wrapped up with a quick visit from Governor Deval Patrick, who tried to jawbone the despondent agglomeration into hiring union contruction workers for any expansion projects they might be planning. “One out of every five people claiming unemployment benefits are from the building trades,” the governor said. They see a billion dollars of public funding going into the life sciences field, and yet “they don’t feel they get a fair shot at jobs on your projects,” he said. “I ask you as a partner, a friend, and your governor, to give union workers a fair chance to compete.”

Gov. Patrick ended with what I thought was a nice phrase: “Innovation is our edge” in Massachusetts. Sectors like biotech, cleantech, health care, high tech, and smart manufacturing “will be our path out of this recession and into a strong and secure economic future.”

That, at least, offered an upbeat segue into the cocktail hour.

The Latest Globe Column: What Happened to Cyberkinetics

My most recent Boston Globe column dives in to the story of Cyberkinetics, a really promising Brown University spin-out that ceased operations earlier this year. Here's the opening:

Tim Surgenor decided to take the job running a small start-up company when he saw the rhesus monkeys playing video games at a Brown University lab.

The monkeys could not only use a joystick to play a pinball-like game, but also control the action on the screen just by thinking. An array of electrodes affixed to their brains eavesdropped on a cluster of about 30 neurons and instantly interpreted what the monkeys intended to do. It was perhaps the most sophisticated interface between a living brain and a computer yet developed.

"I thought that it was an incredible technology that really needed to be moved forward," recalls Surgenor, who had been an executive at Haemonetics Corp. and Genzyme Corp.

In 2003, Surgenor became chief executive of Cyberkinetics Inc., helping the company raise more than $40 million, go public, and shepherd the technology he'd seen into human testing. Just last month, he finished shutting down the company, selling off the last of its assets to another local neurotechnology company for $350,000.

What happened in the intervening six years offers a glimpse of how challenging it can be even for a well-funded start-up to bring a breakthrough technology to market - especially in the regulated world of medical devices.

From the Biotech Business Development Conference

The packed house of attendees at today's Biotech Business Development Conference in Cambridge would seem to be a sign of the industry's health. But everyone here seems to have a long list of worries. (The event is organized by Christoph Westphal, co-founder of Sirtris Pharmaceuticals and now also an exec with GlaxoSmithKline, which acquired Sirtris last spring.)

Biotech CEOs working on new drugs are worried about FOBS: follow-on biologics. The US could soon make it legal for companies to produce generic versions of biological drugs (the biotech industry prefers to call them "biosimilars.") That could cut the profit potential of the very expensive new molecules now in development. John Maraganore, CEO of Alnylam Pharmaceuticals, said the industry needs to adopt "a science-based approach" to persuading legislators and the public that follow-on biologics ought to be tightly regulated, rigorously tested, and carefully evaluated by the FDA. In the past, Maraganore said, "we were obstructionists" about the very idea of follow-on biologics.

There's concern about new regulations that govern how biotech and pharma companies can discuss (or "detail") their products with doctors. "Detail times of 60 to 120 seconds is not much different from the UPS guy making a delivery," said David Pyott, CEO of Allergan. "The only difference is the drug rep is better paid, and sadly, better educated." Pyott predicted that drug companies will have to devote more resources to online education for physicians.

Privately-held biotech companies worry about losing negotiating leverage with bigger partners if it's perceived that they're running short on cash. Duncan Higgons of Archemix suggested that many big pharma companies have created their own lists of distressed little biotech companies, and are planning to do some "bottom-feeding" in this environment, buying them (or certain assets) at a discount. Having enough cash on hand to walk away from a deal is always a good thing, said Steve Bernitz of Concert Pharmaceuticals.

Publicly-traded companies feel like the markets aren't rewarding progress. David Meeker of Genzyme noted that the company has had three new drugs approved in the past three months, and yet the company's stock is down 30 percent.

Venture capitalists are finding it isn't so easy to raise that next fund. Jonathan Fleming of Oxford BioScience Partners told me his firm had put fund-raising "on pause" earlier this year, and described the fund-raising environment as "absolutely horrible." (But he said the firm would be out again talking to prospective limited partners "sooner rather than later.")

Investors and start-ups are worried about the focus on later-stage assets. How will new innovation be supported if everyone is focused only on getting products that are already in Phase III clinical trials across the goal line?

"There's a real failure of the capital markets to fund projects to the point where there's an ROI," said Craig Wheeler of Momenta. "If it continues, we could see real damage to the model that has supported innovation of the last twenty years."

Even Wyc Grousbeck, the Boston Celtics owner who'd previously been a healthcare investor at Highland Capital Partners, had a few problems to gripe about (despite sporting a glittery Celts' championship ring on his right hand), most notably injuries to Rajon Rondo and Kevin Garnett, two key team-members.

Today's Globe column: The Elixir/Sirtris Rivalry

As a journalist, it's hard to resist writing about rivalries -- especially when big personalities are involved.

Elixir Pharmaceuticals and Sirtris Pharmaceuticals, two companies founded to exploit the science of sirtuins (which are enzymes thought to be linked to the aging process and age-related disease), have the big personalities: Jonathan Fleming and Ansbert Gadicke, heads of the two biggest biotech VC firms in Boston, are on the board of Elixir, and Christoph Westphal, the golden boy of Boston life sciences, runs Sirtris. (Westphal worked for Polaris Venture Partners before deciding to become a CEO.)

And Sirtris managed to go public first; Elixir is now trying to follow suit.

But the crucial difference is that Sirtris is still very much pursuing drugs based on the sirtuin work of local researchers like Harvard's David Sinclair, while Elixir has in-licensed a diabetes drug already approved in Japan (which has nothing to do with sirtuins), and is trying to get it approved in the US. Elixir, five years older than Sirtris, has decided to develop a near-term product, while Sirtris is still focused on the long-term vision.

“The decision was made that the company needed to really get commercial as quickly as it could,” Ed Cannon, Elixir’s first chief executive, told me. [His comments were snipped from the column before it ran.] “They needed later-stage molecules,” he says, referring to drugs that are closer to winning FDA approval.

Cannon is bullish on both companies' prospects (he still holds some stock in Elixir). “I think Christoph has been a magician,” Cannon says. “And it’s not just smoke and mirrors. He has surrounded the company with terrific scientists, and terrific business people and investors.”

Here's the video, featuring MIT prof and Elixir co-founder Lenny Guarente talking about his research: