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New Haven: Biotech City?
Ever since the gun factories left, Yale’s host city has been searching for new economic engines to replace them. A surge in biotechnology may point the way.
May 2001
by Bruce Fellman

Five years ago, Jon Soderstrom, then in charge of new business development at Lockheed Martin Energy Systems Corporation in Oak Ridge, Tennessee, got a job offer he didn’t want to refuse. Greg Gardiner, the Pfizer pharmaceuticals executive who had come out of retirement to take charge of Yale’s Office of Cooperative Research (OCR), had been given a mandate by President Levin to raise the profile of the University’s efforts to convert its scientific research into marketable products. Would Soderstrom, an expert in what is known as technology transfer, be interested in bringing the OCR to a new level?

“I looked around the country and figured that if there was ever going to be another Silicon Valley or Route 128, New Haven was as likely a place as any,” says Soderstrom. “It was such an untapped community.”

It is untapped no more.

The OCR, which was established in 1982, had expanded its reach in the mid-1990s under Gardiner to include the creation of companies, particularly those that might exploit the University’s strengths in the biomedical sciences. And while naysayers dismissed the notion that biotechnology might prove the salvation of New Haven’s ailing economy, entrepreneurs and investors didn’t share their pessimism.

In the past few years, the OCR, now directed by Soderstrom (Gardiner retired in 1998, but remains a consultant) has helped broker deals that have led to the creation of more than 16 biotech companies in the Elm City, and there are at least eight new ventures in development. The phenomenon has produced more than a thousand jobs, and last year, so much private equity investment arrived in the area—$1.1 billion, according to OCR statistics—that when developers recently pulled out of the proposed Long Wharf Mall, a controversial project that had been touted as a cornerstone of New Haven’s economic recovery, Mayor John DeStefano Jr. simply shrugged it off. Biotech, said DeStefano, would easily make up for any loss.

“That’s a lot of weight to put on our shoulders,” quips Soderstrom, but recent events suggest that the mayor’s vote of confidence was not misplaced. In addition to a plethora of startups that are based on discoveries made by Yale scientists, one slightly more mature New Haven company, Curagen (founded in 1993 by Jonathan Rothberg '91PhD), signed a $1.4-billion deal in January with pharmaceutical giant Bayer to collaborate on the development of drugs aimed at curbing obesity, diabetes, and other ailments. Genaissance Pharmaceuticals, launched in 1997 by Gualberto Ruano '92PhD, ‘97MD, sold nearly $90 million worth of stock when it went public last year—a noteworthy achievement because it occurred during a down year for the stock market.

Meanwhile, the University has helped attract two major real estate developers, Winstanley Associates and Lyme Properties, LLC, that have experience in creating laboratory space, a valuable commodity that was in desperately short supply. Winstanley bought the vacant headquarters of Southern New England Telephone at the corner of George and College streets for $27 million and is spending at least that amount to renovate the building. Lyme, which earlier had developed the highly successful biotech complex called One Kendall Square in Cambridge, has taken over the development and management of Science Park, the 80-acre factory complex that once housed the Winchester firearms plant and is now home to a number of biotech and high-tech firms, including Genaissance. A turnaround is clearly under way, for after years of losing money, the Park announced in March that it expects to turn a profit of $1 million in 2001.

“New Haven is becoming a destination resort,” says Jeffrey Collinson '63, a partner in the Stamford-based venture capital firm of Collinson, Howe, and Lennox LLC. The company specializes in investing in healthcare firms in the early stages of their development and has provided funding for half a dozen New Haven-area biotech startups, beginning with Neurogen in the late 1980s and continuing to the present with Molecular Staging, Inc., which was spun off from the research of Yale geneticist David Ward and his colleagues and now occupies lab space in the Winstanley building at 300 George Street. “Keeping this technology close to home is a good thing for the University and the city,” says Collinson.

There are many reasons to agree. New Haven tax revenues could rise, perhaps significantly, and for the University, royalties from licenses it has granted to companies exploiting patented discoveries made in Yale research labs have already proven a substantial source of income. The biotechnology industry is also attracting related services in such areas as law, public relations, venture capital, and the like.

But not everyone sees biotech as the proper prescription for New Haven’s economic ills. “I think we’re overselling this big-time,” says Douglas Rae, the Richard S. Ely Professor of Management at the School of Management and an expert on urban affairs. “We’ve already seen that the original story of Science Park, which was supposed to employ its neighbors, was hollow. I give biotech two cheers—it may be wonderful for PhDs, but I don’t see it as a replacement for Winchester.”

At its height through both World Wars and into the 1950s, Winchester and other New Haven factories employed some 38,000 people. The company was bought by the Olin Corporation in 1981, and much of its business was moved elsewhere. This, coupled with the general decline in manufacturing throughout the city, reduced the number of these jobs to only about 5,500 last year. “While there’s certainly a multiplier effect to retaining Yalies and other bright and well-paid people here, biotech is not going to be a big piece of the answer for the city,” says Rae. “I wince every time I hear how we’re going to solve an 80-year-old problem in 80 or so months.”

Biotech may not be a panacea, but the progress already made has created a positive buzz about New Haven, including favorable feature coverage in the New York Times and the Wall Street Journal—a welcome change for a city that has seen its share of bad press. “The deeply engrained idea that New Haven can’t succeed is an attitude we’re working to overcome,” says Soderstrom. “This effort is all about creating the engine that will get us to a 21st-century economic future.”

This deep involvement in boosting the economy of its host city is striking evidence of the cooperative relationship that now prevails between Yale and New Haven. But the fact that the University has embraced entrepreneurship at all, let alone with such enthusiasm, is a sign of what many are calling a fundamental shift in attitudes.

One of those who have seen the change up close is Genaissance CEO Gualberto Ruano. In the late 1980s, Ruano was working in the laboratory of genetics professor Kenneth Kidd, and in the course of his research, Ruano discovered a rapid method of decoding DNA and the genetic code. “It never went through my mind that there could be a patent involved,” says Ruano. But a visit to the lab by Dr. Henry Lee, Connecticut’s well-known forensic pathologist, who wanted to set up a DNA fingerprinting facility, changed his point of view. “I started thinking that there might be an application for the technique I had found,” says Ruano.

Ruano worked with then-OCR director Bob Bickerton to secure what became U.S. patent number 5,427,911 (“a patent that has generated more money than the University put into training me,” says the researcher), and he began to look for possible applications. Ruano’s training in population genetics had impressed him with the importance of variations in genes, and his technical expertise enabled him to study the genetic code that was being read in its entirety by the Human Genome Project and tease out the portions which might prove useful in developing medications.

The problem was that no University laboratory could afford to invest in the kind of equipment required for such a task. Each of the gene sequencing machines used in Ruano’s work costs $300,000 and runs nonstop, and he needed dozens of them.

“I had to go industrial,” he says. Ruano also had to raise vast sums of money—$195 million to date for a venture he expects will turn a profit by 2004. But while such efforts have fostered numerous collaborations with University researchers—Genaissance even sponsors a lecture series with the School of Medicine—Ruano’s entrepreneurship would probably have garnered the CEO something akin to pariah status at Yale in an earlier time.

“There’s been a complete transformation in the University’s attitude towards cooperating with industry,” notes Alan Sartorelli, the Alfred Gilman Professor of Pharmacology. “More than 30 years ago, when I proposed the first major interaction with Bristol-Myers, many of my colleagues suggested that any collaboration would take away from the purity of what we do in academia and maybe even destroy Yale. But corporations are no longer seen as wearing black hats.” And neither are professors who would like to see their basic research go commercial.

To be sure, one reason for the change of heart is simply the passage into history of an era during which corporate America was widely regarded on many campuses as threatening, if not evil. Another reason is the Bayh-Dole Act, a 1980 law that established guidelines for patenting and licensing discoveries made with federal funds and encouraged technology transfer as a means of promoting economic growth.

Schools with strong engineering traditions, such as MIT and Stanford, were already comfortable using basic science as the source for product development. But according to University provost Alison Richard, Yale was at first reluctant to take part. No more. “We live in a society where it is less and less desirable, to say nothing of tenable, for universities to hide inside their ivory towers,” notes Richard.

Yale’s shift in attitude began in the early 1980s, when Robert Bickerton headed the OCR and faculty committees were grappling with conflict-of-interest issues raised by any proposed collaboration. In 1988 Bickerton shepherded the licensing of a compound called d4T to the Milford-based Bristol-Myers Squibb. The substance, discovered by pharmacologist William Prusoff and medicinal chemist Tai-Shun Lin, was the first of a class of anti-AIDS drugs known as reverse transcriptase inhibitors. The medication, marketed under the trade name of Zerit, has generated more than $100 million in royalties for Yale and helped finance the Medical School’s massive Clinical Research Building, now under construction at the corner of Congress Avenue and Cedar Street. (In March, the University ageed to relax the terms of its licensing agreement so that the drug could be made more easily available in Africa, where AIDS has reached pandemic proportions. (See "Yale, Drug Maker Loosen Rein on AIDS Drug in Africa.”)

“The world of licensing is a world of jackpots,” says Richard. And in that venue, Yale, despite its relative latecomer status, fares remarkably well. With annual royalties last year of nearly $41 million from 100 licenses, it is ranked number-three (behind Columbia and Florida State) among U.S. research universities in licensing income.

The booming economy of the 1990s meant that there were increasing amounts of capital looking for places to grow, and President Levin embarked on a partnership with New Haven to boost its economic fortunes. Gardiner, and, later, Soderstrom and his staff, brought a new energy and expertise to OCR, but what really made the subsequent surge possible was a change in the fundamental structure of the pharmaceutical industry.

The recent trend has been for giant companies like Pfizer, GlaxoWellcome, and the like to get even bigger through mergers and acquisitions. In many cases, however, the outcome of this growth has been an increased emphasis on testing and marketing drugs, and a decrease in the basic research necessary to discover new medicines.

“What’s moved into this vacuum is the biotech company,” says Alan Sartorelli, the inventor of several promising anticancer drugs being developed by Vion Pharmaceuticals. Sartorelli helped start Vion several years ago to bring his work into the healthcare marketplace, and the company is also refining a cancer drug delivery system discovered by John Pawelek, a senior research scientist in dermatology.

Vion is based in Science Park, which was launched in 1982 by a consortium made up of Yale, New Haven, the State of Connecticut, and the Olin Corporation to turn the abandoned and crumbling Winchester factory complex into a business incubator for technology-driven companies. But while the Park has been home to some notable success stories over the years, it never seemed to live up to its promise. “What was missing was demand,” says Bruce Alexander, Yale’s vice president for New Haven and state affairs. “It would have taken a miracle to create a successful Science Park without demand.”

Worse yet, the public-private group that managed the Park often couldn’t meet the needs of companies that were beginning to succeed and watched helplessly as they moved to other areas. One high-profile tenant, Alexion Pharmaceuticals, expanded its operations to a site in Cheshire, a suburb of New Haven, while another company, Gene Logic, left the Park and moved to Gaithersburg, Maryland. “There was plenty of venture capital around, and there was no lack of entrepreneurial management talent to run these businesses,” says Alexander. “The main threat was the lack of laboratory space in the city.”

There had been talk in the 1990s about developing a biotech park in the Hill district near Yale–New Haven Hospital. But toward the end of the last decade when the OCR had companies ready to roll, the proposed site was still a weedy median strip along Route 34. “If any boom was going to happen, we needed lab space in a short time frame,” said Alexander, “and so we turned to existing facilities.”

The former headquarters of the Southern New England Telephone Company at 300 George Street was empty, and Alexander saw beyond the peeling paint. The building was structurally sound, equipped with the heavy-duty floors and air-handling systems required by biotech firms, and wired for high-speed internet connections. “It was also close to the Medical School, which was a distinct advantage,” he explained. “Startups like to be close to the source of their science.”

The reverse is also true, notes David Ward, professor of genetics and cofounder of Molecular Staging, Inc. (MSI), whose corporate and research offices at 300 George Street are a five-minute walk from Ward’s lab at the Medical School. The company had its origins in novel technologies, particularly one called “rolling circle amplification,” that had been invented by Ward and other researchers. RCA, as it is known, enables researchers to detect small molecular abnormalities in genes and proteins that are important in many diseases. “The RCA technique’s sensitivity is orders of magnitude ahead of everyone else's,” says Ward. “It has set a gold standard for detection tests called immunoassays, and it was of almost immediate interest to a number of industries.”

Deals have been struck with companies such as Cytocell, Motorola, and Amersham Pharmacia Biotech to license the proprietary technology, but while MSI president Torben Christensen saw the advantages of being close to Ward, he had a problem: The rapidly growing startup had nowhere to expand. Christensen was eyeing lab space in New Jersey.

So was William Rice, a cancer researcher and entrepreneur with a fledgling company, Achillion Pharmaceuticals, that needed a product to commercialize. Alfred E. “Buz” Brown, who directs the OCR’s medical school branch, brought a suite of promising antiviral compounds discovered by Yale pharmacologist Yung-Chi Cheng to Rice’s attention, and when the match seemed a good fit, Brown and his staff were also able to bring together a quartet of investment groups and lawyers to execute a simultaneous signing of more than 100 legal agreements required to start commercializing the drugs. “This is not a venture for the faint-of-heart,” says Brown.

And it almost didn’t happen in New Haven, for Achillion was being heavily courted by Princeton, which offered first-rate facilities. But then the SNET building became available. Alexander led a delegation that encouraged Achillion to move to 300 George Street, and the University helped ensure the success of the project by leasing a substantial amount of floor space that is being refurbished to house offices and laboratories that needed to find temporary homes in advance of Medical School renovations.

The building is currently 60 percent occupied, and any empty space is not likely to remain so for long. Science Park is almost filled, and the fact that Soderstrom reports a steady stream of patentable discoveries coming into his office means that Lyme Properties need not worry about having tenants for the one million square feet of laboratory and office space it is creating in the forbidding shell of the old Winchester plant’s Building 25.

“The challenge for Yale and the city is dealing with the potential instability inherent in this industry,” says Genaissance CEO Ruano. “But I think we’ve reached critical mass.” Adds Soderstrom: “We have just begun to see the fruits of our labors.”  

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