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— Cover Story —
There's another side of Silicon Valley, intertwined with the high-tech world to some extent but with its own science and financial calculus. Just as high tech is clustered physically and psychically around Stanford, biotechnology is inextricably connected to the University of California, San Francisco. It's where much of the pioneering work of genetic engineering took place to create the foundation of biotechnology and transform not only medicine but also agriculture, energy and industrial processes. With research labs, hospitals, and a world-class medical school, UCSF wields significant economic power in San Francisco. The city's second-largest employer, it received $444 million in National Institutes of Health research funding last year, second only to Johns Hopkins University. Its alumni and former professors have spread through industry from behemoths such as Genentech Inc. to the tiniest of startups. And as San Francisco leans on life sciences to boost its economy, civic leaders want to use UCSF as their siren song.
All this adds up to a public university that, like no other, embraces the private sector. Ground zero of this effort is the new Mission Bay neighborhood, a 300-acre bayside parcel once filled with old warehouses and abandoned train yards. With 43 acres already centered around research labs, plus 14 more earmarked for a major hospital, UCSF's Mission Bay campus will eventually be surrounded by mixed residential and retail, parks, hotels and perhaps an entertainment complex run by the San Francisco Giants, whose nearby waterfront baseball park helped spark the area's rebirth. The next two years are critical. The UC system is bearing more than $800 million of the state's attempt to close a $24 billion budget gap. San Francisco's political leaders are divided and distracted. The recession continues to curb development. A flourishing public-private, biomedical-focused neighborhood is not a foregone conclusion. Mission Bay's likely economic impact is still a question mark. UCSF has just begun a study that will take at least six months to produce, says spokeswoman Kristen Bole. With the fiscal crisis, the school needs data to show its value to politicians and taxpayers, she says. "UCSF is not well understood in the public, largely because we're the only campus that doesn't have undergrads." The infrastructure is waiting. In fact, UCSF's historic comfort with entrepreneurship is built into the design. Interspersed with labs, lecture halls and dormitories are venture capital offices, public-private incubators and grand buildings meant for corporate tenants. The school's ties to the biomedical industry run deep, at an institutional level and among researchers who have crossed back and forth. The school and affiliated labs have multiple ongoing relationships with companies such as Amgen Inc., Pfizer Inc. and Genentech. The ties came full circle this year when Genentech executive Susan Desmond-Hellmann, who trained as an internist and taught at UCSF before entering industry, became chancellor on Aug. 3. Once considered CEO Art Levinson's heir apparent, she left Genentech when Roche Holding AG completed its $47 billion takeover this spring. At the ribbon-cutting of the school's new cancer research center in June, Desmond-Hellmann said the explosion of information across biomedical frontiers means academic and industry researchers must share knowledge like never before. "If you're an investigator and you don't have someone in bioinformatics, pathology, genomics, arrays, it doesn't matter if you're in academia or industry, you have to be a team player and you have to collaborate." The school shook off its ivory tower attitude toward industry long ago, says Barbara Finck, who nearly 20 years ago had a residency and fellowship at UCSF in rheumatology, studying lupus in mice. She moved into industry because "it was important [for me] to go into humans," and eventually she directed clinical trials for Enbrel, a successful treatment for rheumatoid arthritis and other autoimmune diseases. "When I left to go into industry, it was OK, but when the generation ahead of me left to start Genentech and other companies, they were treated like they were disloyal. That changed as people in industry began having liaisons back into UCSF. You were allowed to come back. You weren't black sheep," says Finck, who returned to San Francisco after five years in Seattle because of her UCSF connections. Finck herself did "sponsored research" at UCSF -- work in a university lab paid for by a for-profit firm -- for the biotech OncoGen Inc. on a rheumatoid arthritis drug Bristol-Myers Squibb Co. finally brought to market in 2005. Now the chief medical officer of Osprey Pharmaceuticals USA Inc., Finck is turning to a UCSF-affiliated lab for similar help, testing in mice one of Osprey's drugs. Osprey is trying to block proteins called chemokines from acting in ways that lead to autoimmune disease and potentially cancer. The lab Osprey is paying isn't just a research shop; one of the world's chemokines experts runs it. Sponsored research deals have included multimillion-dollar payments from big companies to university labs, such as a former division of Novartis AG committing $25 million in 1998 for agricultural genomics research at University of California, Berkeley. But the open-ended "megadeals" brought little return to the sponsoring pharmas. "They didn't see the value, and it's now harder to do these deals," says Joel Kirschbaum, who heads UCSF's office of technology management, which oversees and licenses the school's patents. "Now they go in on a more selective basis, project by project, investigator by investigator." In his office overlooking Mission Creek, a bay inlet north of campus lined with a funky and tenacious houseboat community, Kirschbaum says industry sponsorships provide about 10% of total research funding UCSF receives annually, a number that can fluctuate depending on the economy. This year it could drop as low as 6% or 7%. Among the many tie-ups, the school since 2005 has signed umbrella research agreements with Amgen, Genentech and Pfizer. The university would not disclose how much cash it has actually received from those deals, but it reported total industry-sponsored research revenue of $103 million for fiscal year 2008. None of the umbrella research deals resulted so far in an invention, Kirschbaum says. That's not unusual, he adds, but as drug companies scale back in-house laboratories and look for new sources of innovation, there's no clear sign that university research will fill the void. But if industry wants to pay, UCSF is ready. The school has devised blanket or "master" agreements that set the rules for collaboration and make one-off agreements easier to reach between a company and individual researchers. In an era tainted by pharma-industry payola to doctors, clinicians and researchers, the school has taken pains to protect its reputation and intellectual property. Corporate sponsors cannot block publication of research, and if the collaboration materializes, the corporation has right of first negotiation for the IP. Kirschbaum and other university officials say corporate influence is discouraged through conflict-of-interest guidelines, right down to the guest lecturers professors bring in. "They can't promote their companies or compounds," says Kirschbaum. "And they can't offer to hold the class in Tahiti." But that exposure to industry -- with cutting-edge ideas as well as software and other lab technology, also draws students. "The guest lecturers were worried about shilling for their companies," says Corey Adams, who received his Ph.D. this June in pharmacogenomics and pharmaceutical sciences. "But the students were saying, 'Come on, tell us more.'" About 10 years ago, Adams was working at Boston University Medical Center. "There was distaste and discouragement on the part of faculty of moving into industry with a Ph.D., but there's a higher comfort level here," says Adams. He now works for a tiny startup near campus doing antiviral drug discovery and for a UCSF lab doing enzyme research that Adams says, slightly tongue in cheek, "won't be useful to anyone within three decades." That lag time between pure research and "usefulness" is a huge factor in the evolution of Mission Bay. Economic planners say high-tech R&D jobs, including biotech, tend to generate 2.5 to 5 additional jobs in the surrounding area, from lunch counters and office supply stores to lawyers and accountants. That's all well and good. But academic labs and the tiny startups they spin out are mere economic specks because their work is so far removed from market. In the drug world, from lab discovery to product could be a 10- or 15-year slog. For Mission Bay to be a thriving, revenue-generating engine for San Francisco, it needs its new hospital. Current plans for a $1.6 billion three-hospital complex -- one for women, one for children, one for cancer patients -- call for a grand opening in 2014. "We're talking high-end hospital infrastructure, a research-focused infrastructure that will draw top clinicians in the country," says Michael Schuppenhauer, a biotech consultant who has worked on regional projects including San Jose, Calif.'s biotech incubator. "You'll have medical research and new ideas for therapies, and that's when the big companies get interested." In other words, research with patients, not mice, attracts big firms. And they will come to UCSF because of its prestige and regional draw. In theory. Attempts to draw big tenants have been mixed. Pfizer in July ended plans to put about 100 people in Mission Bay. Biotech veteran Corey Goodman, also deeply tied to UCSF, was supposed to run the so-called Biotherapeutics and Bioinnovation Center, or BBC. He left Pfizer this spring around the time it said proposed merger partner Wyeth's Mikael Dolsten would run biologic research at the combined entity. The Mission Bay-based BBC would have been a high-profile corporate anchor to complement UCSF, but Pfizer's $68 billion planned takeover of Wyeth and the economy dictated otherwise. Developers and officials had to scramble, and the landlord said in August that Pfizer is close to finding a subtenant. Another big Mission Bay tenant, FibroGen Inc., moved in December up the road from South San Francisco, but its 240,000-square-foot building, complete with statuary and a swaying wall of bamboo, is partially empty on the lot where clothing company Esprit International's warehouse used to stand. FibroGen hoped to have its most promising drugs, two treatments for anemia, much closer to market by now, with far more employees signed on. It's offering 10,000 square feet for sublease, branding it "incubator space" because the UCSF-affiliated research group QB3, which has its own in-house incubator for university spinouts, is giving the FibroGen tenants access to QB3 facilities, tools and a mentorship program. San Francisco Mayor Gavin Newsom was scheduled to do a photo op in July to help publicize the space -- and help FibroGen find subleasers -- but the event never happened. A University of California regents meeting drew crowds to the Mission Bay campus to protest budget cuts, and Newsom, a candidate for governor, steered clear, according to people familiar with the event. It was a missed chance to get past the Pfizer snub. Newsom returned in August for an "innovation summit" with House Speaker Nancy Pelosi, in which he teased attendees that the company taking Pfizer's space would be "arguably much better than Pfizer," language that wouldn't help if Pfizer re-considers. Meanwhile, five companies have sublet from FibroGen, taking 15% of the offered space. For Osprey the move was part expediency -- its lease in a San Francisco high-rise was nearly up -- and part the chance to be a few blocks' walk away from the UCSF-affiliated lab Osprey has hired to test one of its drugs, code-named CCL2-LPM, in mice. Kirschbaum and other officials have worked to streamline the paperwork for industry-university research deals, setting the stage for what inevitably seems closer ties. Pharmas are shaking up their moribund research groups, more often than not by firing them. But they need to stay tuned into the latest research, more of which should take place in academic labs as NIH funding is expected to boom during the Obama years. And pharmas aren't going to wait for biomedical innovation to flow to them via the route from academia to biotechs nurtured by venture capital. Not with VCs, already spooked by the 10- to 15 years of bringing early-stage research to fruition, crushed by the lack of exits. "The biotech bridge system is already gone," says Frank McCormick, a renowned biochemist -- and, as his screen saver shows, a Formula One racer -- who runs UCSF's cancer research center, which just relocated to Mission Bay. McCormick spent years on the other side of the fence. After a decade at biotech pioneer Cetus Corp., he founded Onyx Pharmaceuticals Inc. in 1992. With help from Bayer Schering Pharma AG, Onyx brought to market liver and kidney cancer treatment Nexavar, a big biotech success. "The academic farm system has already started," says McCormick, whose own lab has a deal with Daiichi Sankyo Co. Ltd. Like so many others at UCSF, he touts the benefits of corporate-academic connections. There's the money, of course -- though he's proven a good fundraiser from philanthropic corners -- and also the lab tools and technology that industry can provide to researchers. Over at Osprey, CEO Jack Anthony says tiny startups like his, where VCs want everything to be virtual, can tap into the "farm system," too. "You'll see more of it in the future. We certainly don't have a vivarium [full of mice]," Anthony says. "It's mutually beneficial for the company and the academics to work out some relationships. These guys aren't out there getting awarded grants left and right, they're out there singing for their supper. Just like I am." |
In the popular imagination, Silicon Valley equals digital technology: ever-faster chips, Apple Computer Inc., Internet startups and all the money, power and smarts that go with it. Silicon Valley even has its own born-in-a-manger mythology, its "birthplace" the humble garage, tucked behind a Palo Alto, Calif., side street near Stanford University, where young Messrs. Hewlett and Packard created their now legendary company.
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