As reported by the Hartford Business Journal, October 13, 2008.

Pharma Giants Prowl for Biotech Startups

R&D Stem Cell Firms Following New Business Model

By Jason Millman

Stem cell researcher John Hambor had to leave big pharma in order to get noticed by big pharma.

That pattern is becoming increasingly common in the biotech industry.

Small startup companies such as Hambor’s often take on the heavy lifting in research, while pharmaceutical giants tend to delay acquisitions of promising R&D firms until it’s time to conduct costly clinical trials on their products.

In Hambor’s case, his biotech startup launched only a few months ago and already is getting the attention of major drug companies.

Paul Pescatello, president of Connecticut United for Research Excellence Inc., the state’s biotechnology cluster, said the new business model for small biotechnology companies has been to take on some of the grunt work for bigger companies, and the successful startups can expect to get acquired.

“The biotech companies, maybe going back five or 10 years ago, used to go public, but now they’ve reached a certain point of maturity,” he said. “They are often sold to larger companies who take on the task of further development, the really big expensive clinical trial part of it.”

In Hambor’s case, he left Pfizer, a leading global drug manufacturer with research and development headquarters in Groton and New London, to launch his own stem cell company in May, taking along with him 10 years of research conducted at the pharmaceutical giant. Now Hambor and his team of four are modifying stem cells to research cures for diseases at CellDesign Inc., his New Haven startup.

So instead of Pfizer taking on the heavy lifting, Hambor’s company is conducting extensive research into understanding the physiology of human disease in hopes of developing more effective drugs.

Hambor said he has been in contact with some of the big names in the pharmaceutical world, including Pfizer, his former employer, and Bristol-Myers Squibb.

“We were developing stem cells models for drug discovery at Pfizer, so we used the technology to spin off this company,” Hambor said. “We saw an opportunity to commercialize this with the realization that Pfizer was an early adopter of stem cell technology for drug discovery. Now, every pharmaceutical company is pursuing this technology.”

Mergers And Acquisitions
Major pharmaceuticals are eager to win a piece of the biotech action — new drugs based on stem cell research. That’s why biotech startups that develop products with the promise of commercial success can count on buyers to step in with lucrative offers.

It’s a trend that is playing out in Connecticut.

Take Invitrogen Corp., a California-based pharmaceutical research company with revenues of $1.3 billion last year, acquired Protometrix Inc., a Branford-based biotechnology company, in 2004. Invitrogen is now awaiting approval for a merger with Applied Biosystems Inc., which develops and markets products for the life science industry and is headquartered in Norwalk.

A few years ago, CuraGen in Branford spun off 454 Life Sciences, a gene sequencing company. Roche, a Swiss pharmaceutical giant, acquired 454 Life Sciences last year and kept it in its Branford location.

In the case of CellDesign, in addition to reaching out to big pharma, it also is making connections with other biotech companies, including Zenith Biotech, a Guilford-based company that manufactures culture media for embryo growth.

Zenith branched out into the stem cell industry just a few years ago and already has 50 steady buyers from research groups around the country. The relationship with CellDesign is key for Zenith to establish a commercial presence, said company vice president Michael Cecchi.

“Our avenue into the marketplace is CellDesign,” he said.

Academia Rules
The stem cell marketplace is still small in Connecticut. But growth is expected to come from the state’s academic institutions, which have been the main benefactors of the state’s 10-year, $100 million stem cell initiative so far.

The University of Connecticut and its health center submitted 60 of 87 funding requests last year to the Connecticut Stem Cell Research Advisor Committee. Yale submitted 15 and the University of Hartford proposed one. Small biotech firms submitted six proposals. Of the $30 million awarded so far, the Vernon-based Evergen Technologies has been the only company to win a grant, which was worth $900,000. The rest of the money has gone to UConn, Yale and the University of Wesleyan Stem Cell Core.

An emergence of stem cell companies in the state could create greater competition for University of Connecticut and Yale University, both of which received state funding toward the creation of stem cell centers.

Dr. Marc Lalande, director of the UConn Stem Cell Core, said he hopes the stem cell industry becomes a competitive business, but urged caution in awarding grants to small startups, recommending that grants for those companies be tied to academic institutions.

“The best thing that could happen is grants coming jointly where you have an investigator at a university who can pair up with a small biotech firm,” Lalande said. “That gives some resources to a small biotech and gives them a formal connection.”

UConn expects to open its Farmington incubator facility for startup stem cell companies in 2010 and Lalande expects it will be a few years before significant commercial activity comes out of that facility. In the meantime, both UConn’s and Yale’s stem cell centers have held discussions with big pharmaceutical companies to gauge what areas of stem cell research they are most interested in.

“We’re going to have to wait a while to see how these interactions gel,” he said. “The potential for interaction with private industry is very high on our list of priorities.”

The next presidential administration is expected to provide a boost to the stem cell industry, though the slumping economy makes it unlikely there will be a rush of funding from the National Institutes of Health. Both Barack Obama and John McCain have said they will ease federal restrictions President Bush has placed on federal funding of stem cell research. Should more funding be made available, Pescatello believes Connecticut has put itself near the top of a short list of likely recipients of federal funding because of the infrastructure the state has created.

“The facilities are built and we’re in a good position,” he said.