Oregon's biotech industry stirs
UbiVac, a Providence Cancer Center spinoff pursuing cutting-edge immunotherapy research, reached a crossroads in late 2015.
The 10-year-old biotech company was planning a 300-patient study for its cancer therapies and needed a pharmaceutical partner or investors. And it had outgrown its quarters within the Northeast Portland cancer research center.
Bernie Fox, UbiVac's co-founder and CEO, wanted to stay in Portland, but lab space is tough to come by. He scoped out properties in San Diego and San Francisco, two of the country's premier biotech hubs. Venture capital investors even joined him on the tours.
Then Dennis McNannay, executive director of the Oregon Bioscience Association, got wind of UbiVac's possible departure.
The next thing Fox knew, Gov. Kate Brown was calling his cell phone, followed by state Sen. Ginny Burdick, Rep. Margaret Doherty of Tigard, Metro Council President Tom Hughes and Portland Mayor Charlie Hales, urging him to stay in Portland.
As it turned out, another biotech company was set to exit an existing lab facility in Southwest Portland. After a series of meetings over the holidays and some intervention by a key business leader, UbiVac was able to secure the lab space, where it now plans to expand 10 fold.
"A few more months (to negotiate the deal) would have been easier, but we couldn't let this go," Fox said. "There's nothing like that here in Portland that we knew about."
The UbiVac success story illustrates the promise and perils of Portland's bioscience industry, which has a history of unfulfilled potential. The state's Bioscience Association's Roadmap calls Oregon an upper Tier III or lower Tier II state, or somewhere between "also ran" and "rising star." Tier III states are defined as those "failing to take advantage of their inherent industry strengths … or simply lacking the research capacity to support even limited bioscience growth."
Now, though, state and local leaders are mobilizing to support the industry's growth and secure Portland a spot on the list of top biotech clusters. They hope to not only capitalize on Oregon Health & Science University's $1 billion Knight Cancer Challenge but to create a biotech hub in Portland's Central Eastside Industrial District, just across the year-old Tilikum Crossing bridge from OHSU's South Waterfront campus.
There are many challenges to overcome. Lab space is in short supply for companies like UbiVac that are on the cusp of exponential growth. One promising startup, AbSci LLC, decided to move across the river to Vancouver for that reason. There's also a lack of venture capital and government incentives, a shortage of skilled biotech workers and executives, an absence of major pharmaceutical companies to stimulate growth and spin off more enterprises, and zero IPOs.
"We need more success stories that are truly Portland born," said Dan Snyder, president and CEO of MolecularMD, a molecular diagnostics company co-founded in 2006 by Knight Cancer Institute Director Dr. Brian Druker that employs 60 people in Portland. "It's less about the science that came from Portland, and more about was the organization developed here? It means you were able to find and recruit the right people. You were able to find the ingredients here. You can't snap your fingers and force that to happen. All those pieces have to come together."
Long-time comin'
Bioscience jobs in Oregon grew 31 percent from 2001 to 2011, according to the Bioscience Association's Roadmap. Today, the industry has a total payroll of almost $1.3 billion and employs 18,273 people in research, medical devices, pharmaceuticals and chemicals, making it the state's fifth-largest industry sector, according to the Oregon Employment Department.
The Roadmap Committee, co-chaired by McNannay, put forth an action plan in 2012 to boost Oregon's standing to a "solid Tier II" state by developing new sources of risk capital for emerging companies and expanding workforce development, among other items.
The Business Journal took notice, reporting that Oregon's "sleepy biotechnology industry is finally showing signs of life." The story cited two relocations from out of state: CytoDyn Inc., which is developing HIV drugs, and Galena Biopharma, which is in the cancer space. Since then, CytoDyn has decamped to neighboring Vancouver and Galena, which has been hounded by insider trading allegations, to the Bay Area.
Meanwhile, another key development took place in 2013, when the Oregon Translational Research and Development Institute opened a bioscience incubator on Southwest Macadam Avenue.
Supported with $1 million a year in state funds, the incubator now houses 14 startups, which take advantage of shared lab and meeting spaces and scientific equipment, including fume hoods, tissue culture facilities and robotics. OTRADI also offers access to a mentoring program, monthly speaker series and two entrepreneurs in residence.
OTRADI filled up instantly, even after an expansion last year to 17,000 square feet. It has 30 companies on its waiting list. Among the incubator's tenants are OHSU spinoffs 13therapeutics, which is developing anti-inflamatory drugs, and Aronora, which has received $14 million in grant funds to develop a compound to treat cardiovascular disease.
"OTRADI's role is to incubate, grow and launch biotech startups — that's our niche," said Executive Director Jennifer Fox. "The need is outstripping the supply here. We need to graduate companies to make room for the next generation of startups."
OTRADI tenants that are ready to scale to the next level — expand to 10,000 square feet and hire 10-to-20 employees — don't have a lot of options. That was the case with AbSci, the incubator's first tenant. It started with 400 square feet, then tripled in size, taking the maximum allowed for incubator tenants.
It still wasn't enough. In November, AbSci signed the first lease at a life sciences hub the Port of Vancouver USA is developing in the former Red Lion Hotel. Redeveloping a hotel into labs is relatively inexpensive, as extensive plumbing is already in place for the guest rooms.
"It definitely would have been our preference to stay in Portland," AbSci CEO Sean McClain said. "It's bittersweet for us, because we had to do what's best for the business."
What's lacking
Building out a lab facility can add $100 a square foot, and developers are hesitant to build such specialized space on spec. That's why government incentives — tax waivers, low-interest loans, matching funds and seed capital — are key. That's also where Oregon, which has dealt with a succession of lean state budgets, falls short.
incentives are not a trivial issue," said Dan Dorsa, senior vice president for Research at OHSU. "We're not talking about a lot of money — $100,000 or $200,000 to help them take that next step is really valuable. The way all of our agencies are currently structured, there's no clear pathway to figure that out."
As Metro's Hughes put it: "I think we suffer at the state level from a lack of tools."
To be sure, Gov. Brown in February announced a new program of up to $125,000 in grants for four Oregon companies participating in a companion federal program, such as the Small Business Innovation Research Program, which is often used in the biosciences.
But other states go further. New York, for example, is targeting biotech as one of its main growth industries. It offers $1.4 billion in grants, significant early stage funding, matching funds for federal grants, an entrepreneurship lab and grant writing assistance. The state gave $50 million to the Buffalo Medical Innovation and Commercialization Hub, a shared R&D facility that opened last year, so it could leverage $200 million in private sector funding.
"We're behind the curve," Fox said. "They were probably waiting until there was a surge in this sector. You have to wait until you have homegrown companies to get state incentives. … We need to look at the tools states are using and adopt them."
Vince Porter, Brown's policy adviser for jobs and the economy, said the grant program may be modest, but Oregon can't be "all things to all biotech companies."
"That's not a good long-term strategy," he said. "We can be a good partner with those that are good fits in Oregon. UbiVac is a great example. We can come up with ways to make it work."
Incentives are important because of the nature of biotech. It can take years — and millions of dollars — to go from idea through clinical trials, the patent process and final approvals. The long horizon also makes it difficult for these companies to obtain VC or private equity funding.
Last year, Portland-area health IT, device makers and biotechs raised $42 million, more than twice as much as the year before but still a fraction of the $2 billion in VC funds raised by Massachusetts biopharma companies.
"The earlier the stage, the harder it is," said Michael Tippie, CEO of TomegaVax, an OHSU spinoff developing therapeutic vaccines for hepatitis B and prostate cancer. "It's never easy. For a biotech company, your products are securities, 10 years away from a drug being sold by Merck and Pfizer."
And much of the VC focus is on Silicon Valley or Cambridge.
"They ask, 'When was the last IPO or exit in Oregon?' There hasn't been. They say, 'It must be the rain,' or 'Move to California and we'll think about it,'" Tippie said.
The big Mo
One of the most immediate problems, though, is the space shortage. McNannay is working to remedy that by spearheading a task force composed of 38 leaders from the government, academic, industry, economic development and real estate realms to jumpstart a biosciences cluster in the Central Eastside.
"You can't go down there and look at what's happening and not think this is a connectivity that would make sense," said OHSU's Dorsa.
McNannay said evidence of biotech's viability is actually all over the regional economy, if under the radar. He cites last year's announcement that biotech giant Genentech planned to invest more than $125 million to expand its fill-finish production facility in Hillsboro, resulting in 100 new skilled manufacturing jobs.
"The bigger picture is there's momentum developing, and we need to make sure we put the infrastructure, ecosystem and conditions in place to keep companies here," McNannay said. "We're intending to use (AbSci's departure) as a learning experience."
Portland still has one advantage over its biotech brethren to the north and south: a lower cost of living, notwithstanding the recent uptick in housing and commercial real estate prices.
"Our incentives don't have to be as big as California's," McNannay said. "We've already built in an incentive with lower costs."
The Knight Cancer Challenge could also have a multiplier effect, as OHSU — and, by extension, Portland — garners more recognition in cancer research and attracts more top research talent.
"As a percentage of the state's economy, $1 billion is like $15 billion in California," McNannay said. "That would be world news. I keep scrambling for metaphors about how important $1 billion is for cancer research. It will begin to trigger events that are visible."
The UbiVac win
If things continue to break its way, UbiVac could be a seminal event in the local bioscience industry's evolution. Even as UbiVac's Fox was visiting other sites, he had already learned of the 15,000-square-foot property in Southwest Portland that looked to be a perfect fit. The building had just been vacated by Diana Plant Sciences, a French cosmetic manufacturer that had invested $2.5 million in wet labs and clean rooms.
There was just one snag. The landlord wanted UbiVac to obtain a guarantor before it could take over the unexpired lease, and Diana was about to gut the space. So McNannay rounded up a group of economic development leaders. Oregon Business Council President Duncan Wyse convinced the building owner to waive the requirement.
UbiVac will move into the Southwest Boones Ferry Road property on April 1.
"I'm grateful we were able to get in in time to keep this very promising company in Oregon," said Sen. Burdick.
Providence Cancer Center already put Portland on the map for immunotherapy, in which the body's own immune system is stimulated to fight cancer tumors. Now UbiVac's "DRibble" vaccine is in various stages of clinical trials for prostate, lung, colon and breast cancers. Last fall, it signed a research agreement with Janssen Pharmaceuticals, and it's negotiating possible partnerships with three other pharmaceutical companies. It's also considering raising private capital.
Fox plans to use the new facility in Southwest Portland for manufacturing, while research activities will remain at Providence. He said he wouldn't rule out adding another facility closer in as well, so UbiVac can attract post-doctoral fellows from OHSU, which itself generates three-to-five startup companies a year.
The company hired three former Diana employees and is looking to hire 20 to 30 more in the next 18 months and 100 in the next three to five years, up from 11 currently, Fox said.
"They're going to be good paying jobs," he added.
While UbiVac hasn't received government incentives to support its move, Fox may apply for one of the state's new matching grants.
"I feel like people were working hard to figure out what we can do," Fox said. "It's a huge step for us. It will allow us to get to next level."
The making of biotech giants
Boston/Cambridge
Dan Snyder, the CEO of MolecularMD, is willing to pay five times what he pays to rent the company's Portland headquarters in order to maintain a satellite lab in Cambridge, Massachusetts.
"For us, we have the best of both worlds," Snyder said. "You want to have a presence (in Cambridge) because it is such a major cluster of activity — you've got pharmaceuticals, hospitals and universities — and ideally, you want to be in the thick of it."
Boston and neighboring Cambridge are generally considered the epicenter of the U.S. biosciences industry. Massachusetts has more biotech research and development workers than any other state. More than 60,000 people worked in the biosciences industry in 2014. While biopharma jobs fell by 2 percent in the U.S. as a whole, they grew 28 percent in the Bay State, according to the Massachusetts Biotechnology Council, or MassBio.
The success in Boston and Cambridge rests on a strong foundation. The workforce is the most highly educated in the country. Harvard University and its medical school, M.I.T., Boston University and the Dana-Farber Cancer Institute are among the major medical and scientific research institutions based in the city.
Boston is also home to some of the world's leading pharmaceutical companies. Genzyme, a Sonofi company, has long been the largest employer in the industry, with 4,356 employees. Biogen, Pfizer and Novartis are in the top five. Venture capital investment rose to a record $2 billion last year, an all-time high, and there were 17 IPOs in 2014.
Support from local and state governments has been a key to the industry's growth. The Life Sciences Center, a quasi-state agency, is charged with growing the industry. The state offers Investment Tax Credits for manufacturers and a sales tax exemption for companies engaged in R&D. And the Emerging Technology Fund provides up to $2.5 million in low-cost financing to tech firms.
"The support from state and local government is a large deal here," said Elizabeth Steele, MassBio's director of Economic Development & Global Affairs.
Anchored by M.I.T., Cambridge boasts 130 biotech companies, mostly clustered around Kendall Square. MolecularMD was able to find space in one of the last incubator buildings for $75 a square foot, far more than the $14 a square foot the company pays for a lab building in Southwest Portland.
"Cambridge, and more and more of Boston, is dominated by the presence of large pharmaceutical companies, and they're willing to pay pretty high rents, so it's changed the landscape a lot," MolecularMD's Synder said.
Still, it's worth it.
"When we say we're in Cambridge, it provides credibility that we're a real player in the industry," Snyder said.
Seattle is the fifth-largest life sciences cluster in the U.S. and home to dozens of big-name research institutes.
The industry employs 36,300 directly in the state, mostly in the Seattle region, many clustered in the South Lake Union neighborhood adjacent to the University of Washington Medicine Research and Fred Hutchinson Cancer Research Center.
Besides a strong research base, Seattle's biggest assets are strong commercialization programs, access to capital and a deep talent pool, said Dennis Kroft, vice president of Marketing & Membership for the organization Life Science Washington.
If one company put Seattle on the international biotech map, it was Immunex. Co-founded by Steve Gillis as a Fred Hutch spin-off in 1981, it delivered on its promise when it won approval for the arthritis drug Enbrel in 1998, according to Xconomy.com. In 2002, Amgen, the California pharma giant, swooped in and bought the company. Enbrel, one of the world's top selling drugs, had $8 billion in worldwide sales in 2014.
"Immunex was really the first company that came up with something that caused a large strategic pharma to come in here," Kroft said. "We think of that as the start of everything. It got this area noticed."
In terms of research and commercialization, Seattle is no slouch. The University of Washington is the largest grant-funded public university in the country, raking in around $1 billion a year. The Allen Brain Institute and Gates Foundation — created by Microsoft co-founders Paul Allen and Bill Gates, respectively — are important players. Accelerator Corp. has helped 400 companies in the past four years develop promising intellectual property.
While smaller biotech firms in Seattle lament a purported lack of venture capital, the investment climate puts many other locales, including Portland, to shame. Financial transactions in the life sciences — including investments, partnerships, IPOs and the like — have increased to $3 billion from $800 million over the past three years, Kroft said.
One thing he'd like to see is a friendlier business climate.
"The state of Washington does little or nothing for the life-sciences sector, because their name isn't Boeing," Kroft said. "The Legislature greets it with, 'Those big pharmaceuticals, they don't need money.' But 70 percent of our members are 50 or fewer employees. When you don't give them tax credits, they're going to look someplace else to grow."
The Life Sciences Discovery Fund, which was supported by the state's tobacco settlement and gave seed capital to early stage biotechs, was also just de-funded.
The industry seems to be thriving in spite of the lack of public support. There hasn't been an exodus to other locales — just spectacular exits.
Consider Juno Therapeutics. The company, which is developing immunotherapy drugs to treat cancer, exploded with a $265 IPO in late 2014. And last year, Juno followed up with a $1 billion licensing deal with Celgene Corp.
It was possibly the largest upfront payment for a biotech licensing agreement ever.
OREGON BIOTECH AT A GLANCE
In Portland: 13,556
Payroll:$1.3 billion
Average wage:$68,654
Source: Oregon Employment Department, Greater Portland Inc.
Elizabeth Hayes
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