New Haven’s biotech boom

Four years ago, when staff from Yale’s Office of Cooperative Research (OCR) went looking for scientific discoveries with commercial promise, they stopped first at the laboratory of Yung-Chi “Tommy” Cheng, Ph.D., the Henry Bronson Professor of Pharmacology. Cheng is the inventor of eight pharmaceutical compounds with enough clinical promise to interest drug companies, an astounding number for one scientist. He is a co-discoverer of 3TC, one of the essential ingredients in the standard medication cocktails for patients with AIDS. And, the OCR staff learned, he had a portfolio of other compounds with potential for treating viral diseases such as HIV, Epstein-Barr virus and hepatitis B. “Individually,” recalls Alfred E. “Buz” Brown, Ph.D., director of the OCR’s medical school office, “the clinical candidates were less likely to be developed by an existing company. Putting them together as a package, though, gave them synergies that, along with [Cheng’s] technological strength, gave us great potential for building a new company.” As it happened, OCR’s staff were in the process of forming a company around Cheng’s technology when they met William Rice, Ph.D.

Rice, a former research scientist at the National Cancer Institute (NCI), had built the management team for a new drug-discovery and development company based on promising technology he had developed at the NCI. But Achillion Pharmaceuticals, as the new company was called, didn’t have the clinical candidates or the pharmacological talent that Yale possessed. The Yale compounds were just the medicine Achillion needed to gain the venture capital financing necessary for its launch.

“Yale’s assets were highly complementary to what we had already built,” says Rice. “Having Yale as a partner gave us a huge lift.” Yale, too, saw Achillion as an opportunity to bring new money and business to New Haven and used its faculty, staff and network of connections to make it happen. Says E. Jonathan Soderstrom, Ph.D., managing director of Cooperative Research for Yale University, “Buz Brown and [Associate Director] John Swartley [Ph.D.] in our medical school office played a very active role in putting the business together with Bill, raising funds and bringing scientific talent and the business plan together. If it needed doing, we did it.” Rice had originally intended to base his company in Princeton, N.J., but Yale enticed the company to come to New Haven. Brown and Swartley shepherded Rice around the medical school, showed him potential laboratory locations in town and even pointed out residential areas with schools that would be right for his young family. “They really made me want to be here,” says Rice. Together with the OCR staff and Cheng, Rice sought out investors. The partnership was so successful that, according to a report by the accounting firm of PricewaterhouseCoopers, Achillion’s more than $17.2 million in financing represents the largest amount ever raised by a startup biotechnology company. Last summer, Rice moved his family to the New Haven area and Achillion opened its doors in renovated space in a former telephone company building within sight of the School of Medicine.

The launch of Achillion is just one of a growing number of successes for the biotechnology industry in greater New Haven, virtually all of which are directly tied to the School of Medicine. Most have not involved the complex deal-making that was behind the Achillion startup, but each of the eight new biotechnology companies—more are on the way—launched by Yale as part of a strategy to help jump-start the New Haven economy has the potential to grow explosively. With five existing publicly traded biotech companies and four major pharmaceutical research centers in the region, New Haven has emerged as a new mecca for biotechnology entrepreneurs.

Private investment returns to New Haven

The success of the last four years is part of a strategy announced by Yale’s leadership in 1995 to use the medical school’s intellectual might to attract private investment to New Haven. In the early 1990s, surrounded by a city with a declining industrial base and a reputation for poverty and crime, Yale woke up to the realization that it could not afford to look with benign indifference on its local environment. Dramatic change was needed at Yale itself if New Haven was ever to regain its former economic vitality. Guiding the transfer of Yale technology to private, for-profit companies within the region seemed the most promising way to assure that the gold and diamonds mined in Yale laboratories would be turned into jewelry close to campus. In 1995, the University tripled the OCR’s budget and staff and hired as its director Gregory Gardiner, Ph.D., former worldwide director of external research for pharmaceutical giant Pfizer. Part of his mandate was to use promising Yale-licensed technology to build new companies that would locate in New Haven. As part of a wider effort by Yale to revitalize its surroundings, the OCR entered the entrepreneurial fray with a sharp focus on helping new businesses take root in the city. Commenting in 1998 on one of the first flowerings of those efforts, a significant new state investment in Science Park, New Haven’s once-languishing technology incubator, Yale President Richard C. Levin said, “There are few things that Yale can do that will make a larger contribution to advancing the economy of this city and region than this expanded commitment to technology transfer. Yale can be seen effectively as the R&D engine that will spawn companies for New Havbruce

en’s economy.”

Gardiner, Soderstrom (who was then head of the OCR’s medical school office) and their staff met with University scientists, respected venture-capital investors and state business-development leaders. Instead of focusing exclusively on the licensing of its intellectual property to existing companies, Yale began to explore ways in which New Haven-based startups might be formed around technologies conceived in its labs. The OCR worked closely with faculty whose discoveries had commercial value, wrote business plans, found investors willing to back the ventures and to bring business-development expertise to the table, and located appropriate space for growing high-technology businesses. It was an unprecedented effort by Yale to use technology transfer and in-house entrepreneurs to lure private investment into its hometown, and it worked better and faster than anyone could have foreseen. The payoff has already been evident—for New Haven and for Yale. Among the recent successes, all eight new biotechnology companies have attracted hefty infusions of outside investment, together mounting well into the tens of millions of dollars; new high-technology research and development space has been built; and, perhaps most promising for the future of New Haven, a new entrepreneurial culture seems to have taken root within and outside the University to exploit the region’s economic potential. During the first eight months of 2000, the privately held and publicly traded biotechnology companies in New Haven received more than $554 million in new investments. This is a remarkable turnaround for a city that lost much of its industrial base, mostly in manufacturing, during the half-century following World War II.

An engine for employment

While it is still the new kid on the block relative to the long-established giant centers of the biotech industry around Boston, San Francisco and North Carolina’s Research Triangle, New Haven now boasts some of the most advanced and fastest-growing biotechnology companies anywhere. Close to 1,000 people are now employed by the local industry, and every company is hiring as fast it can. “It’s incredibly exciting,” says New Haven Mayor John DeStefano Jr. “We are seeing a change occurring in New Haven that will be defining the center city for decades to come. It’s a transformation of the city’s economy every bit as dramatic as that of the mercantile transition of 1900. New Haven will emerge as one of the dozen centers of the New Economy in America. It’s happening as we speak.”

As for Yale’s contribution, Gardiner describes the process with this metaphor: “Complex crystals grow spontaneously once they are nucleated. Our job is to nucleate, to provide a little push and then let nature take its course.” The first two companies—Molecular Staging Inc. and polyGenomics, both possessing novel genomics technologies invented at the medical school—opened their doors in 1997. Others quickly followed. “It was like an investment that starts small but, because it grows exponentially, becomes very large,” says Gardener, who retired in 1999 but continues to consult for his former office, teach at Yale and assist with the launch of local companies.

Without a doubt, Yale’s participation has been essential to the blossoming of the New Haven biotechnology economy. Virtually all of the area’s biotechnology companies are School of Medicine spin-offs and keep very close associations with Yale. Even for well-established companies such as CuraGen Corporation, a leading developer of drug-targeting technology using genomic information that was founded in 1993, the Yale connections continue to be of value. Bonnie Gould Rothberg, M.D. ’94, the company’s group leader for pharmacogenomics, says, “We’ve always been very tied into Yale. We have active research collaborations and publish papers together with Yale scientists.” Several members of CuraGen’s scientific advisory board are Yale faculty members, including its chair, Richard P. Lifton, M.D., Ph.D., the chair of the medical school’s genetics department. Like most companies in the area, CuraGen’s executive and scientific leadership is also drawn from the medical school. The company’s founder and CEO, Jonathan Rothberg, Ph.D. ’91, received his doctorate and did his postdoctoral work at Yale, as did several other executives.

Yale may possess valuable technology and faculty with scientific know-how, but high-tech business development requires enormous, high-risk investment. Without broader support, Yale’s efforts would not have been as well received by investors. After a long and at times acrimonious history with its home city, Yale leaders now speak of a partnership between the University and New Haven. Underlining the importance of that partnership, Yale created a new officer-level post, vice president and director of New Haven and state affairs, two years ago. Bruce D. Alexander, a former high-level executive with the Rouse Corporation, a leading urban development firm, is the first holder of the office. “Clearly,” says Alexander, “the issue of New Economy companies is one where the University can exercise real influence. What the microchip revolution was to the last few decades, the life-sciences revolution will be for the next few. If we can catch this wave, it will recast New Haven’s economic development in a way that hasn’t been seen since it became a major manufacturing center more than a century ago.”

New Haven Mayor DeStefano credits Yale and the OCR for taking a leading role. “As the head of one biotech company said to me, ‘You have to be like a fighter pilot and react quickly in this business or you’ll be killed fast. Yale has been helping me to do just that.’”

Recognizing the state’s strong base in biomedical research, government and industry leaders have also backed investment in Connecticut’s biomedical sector. Connecticut United for Research Excellence Inc. (CURE), a 101-member organization of academic and research institutions, health care organizations and private companies, has long sought to promote the sector. As part of a wider effort to coordinate economic resources, Connecticut Governor John Rowland designated CURE to be the state’s “Bioscience Cluster” to foster growth in the industry. At CURE’s urging, the state legislature created a $40 million fund to underwrite the building of new laboratory space. Managed by Connecticut Innovations Inc., the fund has benefited many companies including Yale spin-offs in Science Park and in the former telephone company building at 300 George Street, across the Oak Street Connector from the medical school. CURE president Debra K. Pasquale says, “This type of coordination and collaboration has never occurred in the state before, and that makes the environment for our efforts all the more fertile.”

A two-way street

While the economic benefits for the city and state are apparent, it is also true that development of a thriving private biotechnology economy provides significant scientific benefits for Yale’s own academic research and teaching missions—and the school’s reputation. “There are tremendous advantages in having companies here for our own resources,” says Sterling Professor of Genetics Sherman M. Weissman, M.D., who has consulted for private biotechnology companies elsewhere in the country for decades. “We do things of common interest and mutual benefit. We get analyses of our data we couldn’t otherwise afford.” He worked closely with the OCR in the formation of polyGenomics and Molecular Staging Inc. (MSI), companies based on new, extremely fast technology to detect disease-causing gene mutations that his departmental colleague David C. Ward, Ph.D., and Associate Professor of Pathology Paul M. Lizardi, Ph.D., created. With MSI just a five-minute walk from his Boyer Center office, it’s easy to drop by to and from work, he says. “I can have a hands-on view of what’s going on there.”

For the first time, pharmacologist Cheng does not need to fly somewhere distant to guide the development of the drugs he discovered and move them into the clinic. He is chair of the scientific advisory boards of Achillion and another biotech company founded in New Haven last year, PhytoCeutica. The latter company brings his knowledge of mainstream Western pharmacology together with traditional Chinese herbal medicine to develop drugs for improving cancer and stroke treatments. PhytoCeutica also possesses bioinformatic tools he developed in collaboration with the company’s chief executive officer, Patrick Kung, Ph.D., which will be used for quality control and for discovering pharmaceutical uses for herbal medicines. “The companies have advantages being in New Haven,” Cheng says. “They have easy access to me for one. They can just walk over or call.”

Weissman, Cheng and other faculty with close ties to companies can also provide students and fellows in their laboratories with a convenient career path outside academia. Cheng says, “The companies want people trained in the technologies they use, so they are very interested in recruiting people from my laboratories. I’m not training students as scientists for the companies, but the students do now have more options for employment locally.” Says Rice, “We certainly are looking at postdocs as they finish their fellowships. There are major intangibles in just being affiliated with Yale when it comes to recruiting. Smart scientists want to be associated with a place like Yale.”