An American Upbringing for a Promising Industry
With professional investors pumping billions of dollars into Amgen Inc. stock last week on rumors--later denied--of a takeover that would have cost at least $12 billion, ordinary folks must wonder what connection there could be between mega-deal speculation and lower prices for prescription drugs and medical treatments.
But there is a connection, just as there is a more obvious link to fresh investor interest in biotechnology, an industry scarcely 20 years old that speaks volumes about U.S. methods of financing discoveries and innovations.
In fact, dozens of biotech companies are starting up these days, thanks to a new research technology.
And in a larger context, though there may be no single cure for cancer, the outlook for Amgen and the biotech industry says remedies to alleviate cancer symptoms and those of AIDS, Alzheimer’s and other afflictions are in the works.
Amgen’s stock shot up 21% in two days last week, from under $63 a share to more than $76, on rumors that Bristol-Myers Squibb, maker of Bufferin and other such products as well as prescription medicines, would offer $90 a share for Amgen’s stock.
Amgen’s price fell back when Bristol denied the rumor--it closed at $68.44 on Friday. But speculation about buyouts is sure to continue in an atmosphere in which Glaxo Holdings recently paid $500 million for Affymax, a biotech company, and is offering $14 billion for Wellcome, which makes a leading AIDS treatment.
The big companies’ intent is to acquire research capabilities and the rights to promising drugs at a time when hard bargaining by corporate benefit managers is driving down drug prices and big company laboratories are becoming expensive luxuries.
“The big companies are well equipped to handle worldwide marketing and clinical trials for the Food and Drug Administration,” says Viren Mehta, managing partner of Mehta & Isaly, an investment firm specializing in health issues. “But their research laboratories have been less productive of successful new drugs.”
Thus Amgen is particularly attractive because it has two of the most successful new compounds: Epogen, which stimulates production of red blood cells to alleviate anemia in kidney patients on dialysis, and Neupogen, which stimulates white blood cell production to guard against infections in cancer patients undergoing chemotherapy.
On growth and development of those two products alone, Amgen’s earnings could rise 13% a year for the next five years, says Eric Hecht, a physician and a security analyst for Morgan Stanley.
The drugs are economically effective because they reduce the need for costly blood transfusions and medically effective because they bolster the immune systems of patients, thus reducing risk of often fatal infections.
And they are called biogenetic because they use synthesized genes to stimulate the body’s own curative processes--blood cell production from the bone marrow, for example.
Biotechnology, though a young industry, already contains some 700 companies, most of them in the United States, and already has gone through several cycles of exaggerated hopes--and sky-high stock prices--followed by returns to realistic expectations.
Born in the wake of President Richard Nixon’s War on Cancer, biotech’s first aim was to find a single cure, a “silver bullet” to cure the dread disease. But through the years, a growing realization that cancer and AIDS and afflictions of the brain such as Alzheimer’s are complex, changeable and unpredictable has humbled drug companies and investors.
Now efforts are undertaken one step at a time. For example, Amgen, in partnership with a small company named Regeneron, is in clinical trials with a genetic compound intended to slow the degenerative processes of Lou Gehrig’s disease. Hopes of finding compounds to restore lost functions due to sclerosis or stroke are for the future.
The very fact that biotech research is at the frontier of science has made it difficult for big company laboratories with corporate budgets and procedures. So biotech has grown as a decentralized industry, encouraging university and medical center researchers to join business managers in entrepreneurial companies.
That’s why major biotech centers are clustered near university complexes--in the San Francisco Bay Area and San Diego, in Cambridge and Boston, Mass., Princeton, N.J., and the Texas Medical Center in Houston.
Venture capital firms offer initial financing in such places and, when markets are receptive, bring companies public with new stock. But it’s a tough field to predict. Even the renowned scientist Jonas Salk’s company, Immune Response Corp., has been plagued by worsening losses and a sinking stock price.
Yet new companies are being formed at a furious pace in California and elsewhere. The reason is a technological mouthful called combinatorial chemistry . It uses the techniques of semiconductor manufacturing and super-computing to screen thousands of molecules for potential sources of new genetic drugs.
The effects could be dramatic. “Combinatorial chemistry will make it much quicker and cheaper to identify attractive new drugs,” writes James McCamant, editor of Berkeley’s Medical Technology Stock Letter. “Over the next 10 years it will change the nature of the pharmaceutical industry.”
Drug companies are aware of that: Marion Merrell Dow has already acquired Selectide and Glaxo has bought Affymax, two pioneers in combinatorial chemistry.
There will be many more buyouts and start-ups to come in the normal ferment of a new industry. The promise is that biotechnology will bring down the costs of prescription drugs and medical treatments as it brings entrepreneurs and investors opportunities in small companies as well as large ones like Amgen.
A good example of the ability of U.S. industry, academia and government to adapt to scientific discovery and changing circumstances, biotech is a field to watch.
