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Close-Up: Michael Chang

Optimer: Venture capitalists welcome

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Optimer Pharmaceuticals is a hard company to find. Nestled in an executive park hidden beside Interstate 5 in Sorrento Valley, the office lacks the large signage and perfectly manicured landscaping that surrounds some of the other nearby buildings.

The inconspicuous nature of the company could be part of why some of the larger venture capital firms have overlooked Optimer, as they have so many other biotech firms in San Diego. But Optimer's Chief Executive Officer Dr. Michael Chang is optimistic that will change soon.

Photo: J. Kat Woronowicz Dr. Michael Chang, Chief Executive Officer, Optimer Pharmaceuticals

"The way I see San Diego is that I think the number of (biotech) companies versus the number of local, strong VCs (venture capital firms) is not quite balanced," Chang said. "Here there is a lot of entrepreneurial activity, there's a lot of that, but it kind of doesn't quite match with the VC."

"We really need some more examples of success," he added.

Chang is hoping one example of success will come from his own company. Started in 2000 by Chang and fellow researchers Chi-Huey Wong and Samuel Danishefky, Optimer specializes in carbohydrate chemistry and drugs that combat cancer, arthritis and immune disorders.

The company is especially excited about a new drug being developed to fight clostridium difficile bacteria, which causes a potentially deadly form of diarrhea that some health experts say is on the rise in hospitals and nursing homes. The drug, tentatively known as OPT-80, had some success in Phase 2 clinical trials and the Food and Drug Administration approved expanded tests through 2008. There have been no real new treatments for clostridium difficile bacteria since the late 1960s, Chang said, so he is hopeful OPT-80 will represent a major breakthrough.

"The FDA thinks this is a very important topic, so we developed this product on a fast track," Chang said. "The product is a unique chemical structure, a new mechanism, we think that's really vital. It's a very interesting product."

An interesting project that results in a popular drug could draw venture capitalists away from the hotbeds of San Francisco and Boston (where many of their offices are located) and draw them to San Diego, Chang said. Now, he spends much of his time going to those other cities to ask for funding personally.

All things considered, Optimer has so far been a success. The company has accumulated $70 million in venture capital over the past six years and Chang said Optimer has an active pipeline.

But getting the company started was a different experience than Chang's first foray in to running his own business. In 1994 he started Pharmanex, a dietary supplement company. At the time, new laws made dietary supplements easier to create and the market was hot, bringing in plenty of venture capital. After selling that company in 1998 and working to open Optimer, Chang learned the biotech and pharmaceutical market was not as kind.

Building the company off the ground was easier the second time around, Chang said, but convincing venture capitalists to invest in an industry that often doesn't see returns until 10 years down the road is difficult.

The result, Chang said, is a trend of consolidation in the pharmaceutical industry. Bigger companies like Pfizer (NYSE: PFE), which are more capable of marketing, take on the work of smaller companies, which are better at research.

"Large pharma is sitting on a lot of cash and needs a pipeline," he said. "They're in a mood of buying."

This trend will likely continue, with most early research happening in the labs of companies like Optimer, but the drug appearing with a Pfizer label once it hits the pharmacy. This is not necessarily a bad thing, Chang said.

"I think the industry is becoming more mature and has less of a pipe dream, more bottom-line oriented and more critical scrutiny," Chang said.

"I also see more new blood coming to this industry. It used to be biotech was kind of small community and people and executives were recycled. Many of these peoples were with five or six, up to 10 companies, even though they were not necessarily always successful, but there were only so few of these entrepreneurs," he added. "There are more and more newer faces coming through."

But many biopharmaceutical companies were started by entrepreneurs, like Chang, who wanted to work for themselves, so bringing venture capitalists that can sustain their independence is still important. Ultimately, Chang said, success on products like OPT-80 is a requirement to attract attention.

"There are some successes," he said, listing Amylin (Nasdaq: AMLN) and other product oriented pharmaceutical companies. If more succeed, he said, more venture capitalists firms would come to San Diego and set up offices.

"Right now, people come down here from other places, like Boston or from San Francisco or from New York and visit biotech companies and just get a little bit of knowledge of what has to be done here and they're not really that firmly committed," Chang said. "The more (local companies) succeed, I think the whole industry will become more strong and attract more of the big VCs to set up offices here...Really take us seriously."

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