Biotech Firms Won’t Produce Quick Riches

A new drug on its way from the biotech industry promises to curb anemia, and is already exciting financial markets.

Amgen Inc. of Thousand Oaks has synthesized erythropoietin--EPO for short--a protein produced in the human kidney that stimulates the production of red blood cells. And when officials of the Food & Drug Administration hinted recently that they were close to approving EPO for dialysis patients, who become anemic as a result of kidney failure, Amgen stock jumped $3 a share to $40--adding $50 million in market value to a company that had gross revenues of only $53 million last year.

EPO could mean $200 million in annual sales if used only in dialysis. Or it could mean a lot more.

Teena Lerner, a biologist and analyst at the Shearson Lehman Hutton investment firm, sees EPO being used for cancer patients who suffer anemia as a result of chemotherapy or AIDS patients who become anemic from the drug AZT. Ultimately, with EPO substituting for blood transfusions, she sees a $3.5-billion world market by 1993.

But investors should know that Amgen won’t become a billion- dollar giant overnight, if ever. EPO riches will be shared, not only by Amgen but by Johnson & Johnson, which has an agreement to market EPO, and perhaps by Genetics Institute, a Cambridge, Mass., biotech firm that has a patent on EPO, which it has licensed to Japan’s Chugai Pharmaceutical.

Who are those other guys? They’re the inevitable result of biotech being so new. Small companies don’t have big sales forces, so Amgen sold marketing rights to J&J;, and is now disputing their agreement. Patents on biotech are new so disputes arise, like the one with Genetics Institute. Out-of-court settlements may benefit all parties, but biotech always holds a risk of disappointment--which is why Amgen stock recently dipped $1 a share on patent news.

The market, as usual, is manic depressive about biotech. It has taken Genentech, the industry’s best known firm, up to $65 a share and back down to $19, because its product, Activase, didn’t instantly live up to marketing expectations.

Wall Street expectations are the problem--looking for companies to grow quickly into major players, as Apple Computer did. But biotech isn’t like computers, and will develop differently--perhaps as part of the traditional drug industry.

The only certainty is that it will transform medicine. Where the standard drug industry gave you a chemical to counter nature--aspirin to dull pain--biotech cures as the body does, using synthetic proteins identical to those in nature. It has the promise of not only curing disease but of reshaping life--which often makes biotech the focus of landmark legal battles.

Also, unlike traditional drugs, biotech manufacturing will be expensive, because working with proteins is delicate and demands space age factories. For that reason, Japanese companies are eager to enter the business, although they’re at a disadvantage because Japan lacks the basic scientific research that is a strength of the United States and Europe.

Costly Research Needed

In fact, biotech is almost too new to be a business, says Robert Teitelman, author of the forthcoming book, “Gene Dream: Wall Street, Academia and the Rise of Biotechnology.” The fundamental science is still developing.

What does that mean? That there’s expensive research to be done. Amgen and other firms get research money these days from big outfits like Eastman Kodak and Japan’s Kirin Beer that want a place in the industry. Acquisitions in biotech by pharmaceutical giants, such as Europe’s Hoffmann-La Roche, are sure to come.

What does that mean for investors? That good biotech companies are excellent long-term holdings, but highly volatile short-term. The trick is to see them not simply as the source of wonder drugs but as pioneers of new medicine.

In that respect, Amgen is wisely is looking past EPO to concentrate on its next product, granulocyte colony stimulating factor, or G-CSF, a substance that stimulates white blood cells--which kill cancers. It may never become a billion-dollar giant, but pursuing such research holds enormous promise for the company, the industry and--who knows--all mankind.