It’s been a tough few months for Seattle’s life sciences industry.

The granddaddy of Seattle biotech, ZymoGenetics, slashed 161 people — a third of its work force — and disbanded its oncology research team. That followed cuts at Amgen, Cell Therapeutics, Rosetta Inpharmatics, Trubion Pharmaceuticals, and others.

Investing withered in the first quarter of the year. Even the state’s once high-profile Life Sciences Discovery Fund took a hit in the state budget.

The capper came last week, when a major think tank demoted Seattle from its national list of top 10 life-sciences clusters.

For the Seattle area, which just a few years ago was pinning its hopes on biotech as an economic engine, there is fear that progress has stalled and the sector is rolling backward.

The region’s lack of a major “anchor tenant” headquartered in the area may make Seattle especially vulnerable to the recession-driven cutbacks afflicting the industry worldwide.

Today many biotech companies are gutting their research and development efforts in order to keep existing drug and device candidates going in the clinic, said Stewart Lyman, a Seattle biotech consultant.

“They’re hunkering down because the trials are so expensive,” Lyman said.

To be sure, the Seattle area still has strong research infrastructure in place through the University of Washington, Fred Hutchinson Cancer Research Center, and Bill & Melinda Gates Foundation. And not every biotech company is in distress, with Dendreon Corp. recently gaining national attention after positive results for its prostate cancer drug Provenge. Dendreon is actually in hiring mode, with 83 positions listed on its website.

But the biotech sector’s reputation as a high-risk, high-reward type of asset class, requiring years of expensive development and clinical work, is taking a toll. Many traditional biotech investors are pulling back or altering their strategy.

Venture capital investments in the state’s biotechnology sector held up fairly well last year, with $156 million invested in 20 deals, according to the MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association. That was down from the 2007 levels, but ahead of historical norms.

More troubling for those in the biotech industry were the first quarter 2009 numbers, which showed that just three deals attracted a total of $6.8 million. If that slow pace continues, biotech investing could drop to levels not seen in more than a decade.

Vulcan Capital, the investment arm of billionaire Paul Allen, recently said that it has “dialed back” its investing in the sector. The reason? Managing Director Steve Hall said Vulcan “found it difficult to strike the right capital efficiency balance.”

In other words, it’s too expensive with too little potential payoff.

The Life Sciences Discovery Fund, a showpiece of Washington state’s commitment to scientific research, has fallen victim to the state’s budgetary woes. The fund, which was set up to channel $350 million in bonus tobacco settlement money into health and science research, is facing a 41 percent cut to its funding for the 2009-2011 biennium.

One thing that’s been lacking in the Seattle area is a powerhouse biotech or pharmaceutical company on the scale of Microsoft in software, Amazon.com in online retail and Boeing in aerospace. Seattle’s top prospects over the years in biotech have been acquired and absorbed into larger companies, namely Icos (acquired by Eli Lilly) and Immunex (acquired by Amgen).

Some industry watchers lament that the region lacks a breakout company that attracts talent, attention and money.

“Let’s try to make an effort to get Big Pharma in here and create a more stable job environment,” said Lyman, a scientist and 14-year veteran of Immunex.

Some of Lyman’s colleagues have found work in Seattle’s growing nonprofit research sector, which includes such organizations as the Seattle Biomedical Research Institute, PATH, and the Institute for Systems Biology. But so far the migration is modest.

“I don’t know if there’s a huge movement,” he said.

Seattle recently ranked 11th place among the nation’s life sciences clusters, down from 10th place in 2005, according to a report from the Milken Institute, an economic think tank based in Santa Monica, Calif. The institute ranks cities based on biotech employment, research and development capacity, investment and other measures.

In the latest ranking, Boston, Philadelphia and San Francisco continued to dominate the top positions, while Seattle was overtaken by Washington, D.C., which didn’t even make the list in 2005.

[Flickr photo via kaibara87]