Big Pharma’s Losses Are Startups’ Gains

As reports of cuts at major pharmaceutical copmanies pile up, there is a bit of silver lining: There is life after big pharma, as evidenced by the number of life science start-up companies launched by former employees of some of the industry’s heavy hitters.

Take Colin Foster, a 10-year Bayer Pharmaceuticals veteran, who was in charge of resizing the company’s organization before it shut down its West Haven operation completely in 2006. After traveling the world for Bayer, Foster decided it was time to move on professionally, but settle in Connecticut.

“At the end of the day, when you’ve been a traveler, you end up making home wherever home is,” said Foster, who has four children. “There’s that desire for stability.”

Foster decided to adopt some of his research conducted at Bayer and start his own company, Optherion. And when it came to looking for talent, he didn’t need to look far. Many people he brought on board were former Bayer employees, and he also took in other former big pharma veterans. With Bayer shutting down Connecticut operations and others beginning to scale scaling back, the timing was perfect for Foster to recruit top talent.

“There was the opportunity to find appointment for some people who really were stellar in their fields,” he said. “We’ve got people from multiple biotech and big pharma backgrounds, and that’s the right mix.”

Foster isn’t the only former big pharma researcher who tapped the talents of his former colleagues. John Hambor knew exactly where to find his future employees when he started up CellDesign in 2007. A former top researcher for Pfizer, his staff came from his employer of 17 years.

Now the founder of the state’s first company devoted solely to stem cell research, Hambor is using the research he conducted at Pfizer as the basis for his company. In a shift of Pfizer philosophy, many pieces of unused research at Pfizer became available for public access, Hambor said. But Hambor’s first-hand knowledge of the research gives him the competitive edge against anyone who might see that research.

“It’s no more analogous than a chef leaving a kitchen and going to another kitchen,” Hambor said. “It depends on the expertise of the person who’s actually cooking.”

Enabling Policy Shift

The emergence of these startups created by former employees has been made possible by a major policy shift in the pharmaceutical industry over the past few years to sell the rights to research not being used, said Paul Pescatello, president of Connecticut United for Research Excellence, the state’s life science cluster.

“It used to stay on the shelf. They’d hold onto it because they didn’t know what to do with it, or they thought they might want to get it back,” Pescatello said. “There’s the realization that it’s better to get it out there and get revenue for it.”

Uday Khire, a former Bayer employee, chose to start up Cheminpharma in New Haven for one major factor alone: location. With a great deal of major pharmaceutical companies headquartered between New Jersey and Massachusetts, Khire figured there would be no better place to start his own company, which provides drug discovery services to biotechnology and pharmaceutical companies.

“It’s a very nice place, right between Boston and New Jersey and New York,” Khire said. “There are a lot of companies out there, and we’re right in the middle.”

While Pfizer’s recent announcement to cut about 800 research jobs companywide is another signal that recruiting staff will not be difficult during the recession, the opposite holds true in the startups’ pursuit of funding.

For early-stage biotech companies — or any that might be started in the coming year — there will certainly be tight times ahead financially.

Optherion brought in a windfall in venture capital funding in October 2007, securing $37 million in startup financing. The timing was perfect. Foster knows that if he waited any longer, that financing might not have been there, as the recession has limited available cash to young biotech companies.

“In biotech funding, you’re always raising money,” Foster said. “You’re either preparing to raise money or you’re raising money with an end goal or end date in mind.”

Still, those companies founded on in-demand technologies and sound business plans will always find willing investors in any financial environment, Foster said.

“There’s always money available for great companies,” he said.