Biotech on a Shoestring

The recession may have wreaked havoc on the job market and businesses large and small, but entrepreneurs still find some perks, like discounted office supplies.

“We have picked up a few pieces,” said David Rozzell, CEO of Solidus Biosciences. “Desks, tables, chairs…a centrifuge.”

Despite a tough market, new biotech companies carry on with business in San Francisco’s Mission Bay.  These fledgling life science companies are capitalizing on the cheap rent, recession prices, and even swine flu.

“The startup companies are continuing to pop up on our radar,” said Travis Blaschek-Miller, spokesman for Baybio, a trade organization for biotech in Northern California.

Baybio’s membership is up to 465 companies and organizations, from 390 last year. Blaschek-Miller said new companies are coming up less often than last year’s rate of one every two weeks, but the industry has yet to grind to a halt.

CHEAP EQUIPMENT

Looking for a good deal on a life science instruments like a fluorescent plate reader? These days you might be able to pick up a new-to-you Cytofluor 4000 for less than $400 on EBay, a real bargain compared to the roughly $5,000 retail price.

Science companies estimate they regularly pick up expensive equipment for as little as 10 percent of cost, in part because stock has been sold off by companies either going out of business, or getting acquired by or merging with other companies. That can add up to significant savings if your startup equipment is in the $100,000 range.

“We’ve definitely seen an increase in the amount of equipment available,” said Preston “Cinco” Plumb, CEO of BioSurplus, a used lab equipment supply company. “Our warehouses are full of equipment.”

“It’s possible to start a bioscience company on a shoestring, on your own credit card,” said Douglas Crawford about biotech in Mission Bay. He is the associate director of the California Institute for Quantitative Biosciences, commonly called QB3.

The Institute’s building also rents space to baby biotechs for discount rates. UC charges $5.50 per square foot, or about $66 per square foot per year. That cost includes all utilities and services.

CHEAP RENT

Solidus has enjoyed similarly cheap rent in Fibrogen’s new building on Illinois Street in Mission Bay, though Rozzell declined to reveal how cheap. When too many companies wanted to rent space from UC, Fibrogen stepped up and began renting out space too.

“The idea originated with the mayor’s office. We were happy to partner with QB3 and the City with this initiative to spur economic growth in the City and in the Mission Bay life science community in particular,” Fibrogen’s spokesperson Laura Hansen wrote in an email.

In addition to the cheap rates, renting from a larger organization allows small companies flexibility to add square footage as they grow, paying only for what they need.

CHEAP LABOR

Another way Solidus – now consisting of four employees – has benefited from the recession is the readily available workforce. After the company put an ad on Craigslist, “more than a hundred resumes came in, and we were able to identify a very good person quickly,” Rozzell said.

Evidence of unemployment has been well-documented in California over the last months, but unemployment amongst scientists is harder to gauge. There have been some layoffs in large biotech companies, adding experienced competition to the labor pool. The National Science Foundation and other organizations do track employment of those with new science PhDs, but the numbers from 2008 and 2009 have yet to be crunched.

“I hear anecdotally that there are fewer positions,” said Bill Linstaedt, director of UC San Francisco’s career and professional development office. Some of his new graduates are “being outgunned by people who are more experienced.”

Linstaedt did say that, though he meets with hundreds of graduating PhDs and postdocs per year, he is not seeing any drastic effects and that scientists coming out of UCSF are probably not spending longer trying to get a job. He guessed that it might be harder for those coming from outside the prestigious local, life science departments at Stanford, UC Berkeley, and UC San Francisco.

MONEY

Despite readily available supply, labor, and office space, money itself is still a lot harder to coax from banks and investors these days, and venture capital is down in all fields.

In the first half of 2009, venture capitalists invested about $3.1 billion in California, as reported by MoneyTree and the National Venture Capital Association. That’s down a whopping 61 percent from investment in the first two quarters of 2008, which saw about $7.9 billion in venture capital in the state.

Biotech investment is down proportionally less over the same period: 44 percent to $510 million in California for the first half of 2009.

Venture capitalists “tend to go to medium companies to get faster return,” Travis Blaschkek-Miller said, even in good years. Little biotechs cannot count on venture capital until they get to a certain size.

Baby biotechs survive the lack of investment and loans by getting – mostly federal – grants.

And that makes 2009 the “year of the grant,” according to Daryl Faulds, founder of Gemmus Pharma, a small company also based in Fibrogen’s incubator.

Gemmus was born after Fauld’s research group at Bayer was laid off in March of 2007, when the pharma giant eliminated all of its immunology research.

After licensing a cardiac drug from Bayer for “repurposing,” Faulds and Gemmus began investigating its use in flu treatment that, if effective, could drastically reduce mortality in H1N5 bird flu or similar diseases.

The drug, which Faulds did not disclose, has been in use for years for its approved application, but it isn’t sold in the United States. Faulds is interested in the drug’s ability to reduce the “cytokine storm,” a natural immune response that subsequently results in tissue damage and death.

SWINE FLU

Gemmus has also gotten cheap deals on equipment, like paying around $1,200 for a $15,000 instrument. Faulds draws the line at discounted lab supplies and chemicals, which he says could be of dubious quality or may even be stolen.

Though Gemmus did harness cheap recession prices on equipment and rent, it benefited most from another global phenomenon: bird flu.

The federal government paid for everything.

“We repurposed the compound,” Faulds said. “They repurposed the money.”

After the increase in bird flu cases proved a flu pandemic was still a threat – some experts had grown skeptical – the National Institutes of Health made funds available via the stimulus.

Interest in flu has become even more widespread through introduction of the never-seen-before swine flu.

“I had no idea we were going to get a pandemic,” Faulds said. “That got a tremendous reinvigoration in influenza research.”

He’s now hoping to get a Small Business Innovation Research grant, and he’s also put in his own money into Gemmus. “I haven’t taken out any loans.” The next step: get FDA approval for clinical trials, which will require millions of dollars to conduct.

Faulds said if you try to start a biotech on your credit card, you’re probably in trouble.

What he worries most about is not the money or the failure of Gemmus but that he might be chasing the a treatment that might not help people, and he wants to do something meaningful with whatever time he has.

“The time is more devastating than the money,” Faulds said.