Biotech Industry Gaining Maturity

The biotechnology industry is growing up--and with maturity comes pain as well as discovery.

Next year, an unprecedented number of biotech drugs are poised to hit the market, and analysts expect the sector’s revenue to rise by more than the average 11% a year posted since 1995.

But investors, accustomed to tolerating a great deal of failure in the industry, now have much higher hopes. That’s putting pressure on companies to deliver greater returns with less risk.

“As valuations rise higher in expectation of new therapies, there’s less room for disappointments,” said Paul Knight, an analyst at Thomas Weisel Partners.

In 2001, investors plowed $13.4 billion into biotechnology companies, making it the second-best year ever for biotech investment. That investment is likely to continue in 2002, experts said.

“I think you will see money flowing into the sector because there is clear evidence that established products are growing and there is a broad supply of new products coming to the market,” said Michael Sjostrom, who helps manage $1.3 billion in funds at Sectoral Asset Management in Montreal. “That’s in stark contrast to the pharmaceuticals industry, which is struggling to find new legs for growth.”

A record 300-plus biotechnology drugs are in late-stage clinical trials. That means there could be dozens of new drugs on the market in 2002 and as many as 240 by 2007, according to analysis by consultants Ernst & Young.

Companies likely to benefit most are those such as Celgene Corp., whose Thalomid drug to treat multiple myeloma, a blood cancer, this month gained 10 years of market exclusivity in Europe, and InterMune Inc., whose antibiotic oritavancin for bacterial skin infections showed in late-stage trials to cut treatment time in half compared with the standard therapy.

These are companies whose drugs are either just launched or almost ready for launch and whose profile probably will rise substantially in the market.

Erbitux, a colon cancer treatment from ImClone Systems Inc., is set to make one of the biggest splashes of 2002.

Sales of drugs already on the market, such as Immunex Corp.’s arthritis drug Enbrel and Amgen Inc.’s anemia drug Aranesp, are expected to rise sharply next year.

The last few weeks of 2001, when one biotechnology acquisition followed another in quick succession--the latest and biggest being Amgen’s purchase of Immunex Corp.--offered a taste of things to come in 2002, analysts said.

“Mergers and acquisitions activity will maintain investor interest,” said Cory Kasimov, an analyst at Gruntal & Co.

Still, even as biotechnology companies thrust forward with new products, the time it takes for those products to be approved by the Food and Drug Administration is lengthening. That could undermine sales and profits.

There’s also a danger that investors expect too much too soon from biotechnology.

The excitement generated by the mapping of the human genome and other breakthroughs in genetic technology led some scientists to predict the imminent arrival of medicine tailored to an individual’s specific genetic makeup.

It’s now becoming clear that such medicines will take longer than expected to develop.

“You always have the risk that investors could become disillusioned with a sporadic number of failures,” Knight said.

But the biotech industry’s management is experienced now, experts say. The industry is maturing and its leaders have been through several ups and downs.

“The biotechnology industry of today is not the biotechnology industry of yesterday,” said Mark Monane, an analyst at Needham & Co. “It’s more mature in terms of development and in terms of business strategy.”