Biotech Promises Renewed Signs of Life
Anybody looking at the biotech industry these days could easily conclude that it has been a big bust.
Since the late 1990s, biotechnology companies have suffered reduced prices for their public shares and a drying up of access to markets for start-up firms with potential breakthrough products. Nervous investors’ rap on biotech is that the five- to seven-year wait for a payoff from drug development is too long -- and too uncertain. Last year, biotech companies attracted just $2.8 billion in venture capital, down from $4.6 billion in 2000.
“One problem,” says Drew Senyei, managing director of Enterprise Partners Venture Capital, “is that funds invested in biotech start-ups a few years ago have not seen good returns. So they are weeding out companies from their portfolios and not putting money into new companies.”
Meanwhile, only 14 new drugs were approved by the Food and Drug Administration last year compared with 32 or more drugs annually in the late ‘90s.
But to conclude that biotech is on the wane for the long term would be a terrible mistake.
On the supply side, increasing knowledge of the human cellular system -- thanks in large part to the mapping of the human genome two years ago -- promises new cures and ways to prevent diseases. On the demand side, the aging population in the U.S. and other industrial countries, plus the plague of AIDS in Africa and elsewhere, is crying out for the introduction of new medicines.
In other words, science is meeting demographics in a way that promises to lift biotech firms in the years ahead.
The smart money is starting to understand the possibilities. “Funding for biotech goes in four-year cycles, and we could see a window for new companies opening in 2003-2004,” says Standish Fleming, managing partner of Forward Ventures, a San Diego-based venture capital concern that has backed 46 start-ups in the last decade.
Indeed, more than $900 million has just poured into MPM Capital, a health-care venture fund based in Boston. Domain Associates, a venture fund based in Laguna Niguel and Princeton, N.J., has taken in $500 million for investments in biotech and medical sciences.
Some investors are starting to see “greater potential in biotechnology over the next five to 10 years than in other technology fields,” says Robert Liptak, general partner of MPM, which has backed more than 60 companies since 1997 with more than $1 billion raised in earlier investment vehicles.
Among the reasons for such long-range optimism is that a number of impressive new drugs and treatments are crowding at the starting gate.
For instance, one company backed by MPM, Hawthorne, N.Y.-based Acorda Therapeutics Inc., is in clinical trials with a genetic product that may restore nervous-system function in victims of spinal cord injury and multiple sclerosis.
It’s not just those looking for profits who support biotech research, of course. Many small and experimental biotech companies have been propped up by a massive underpinning of public investment, beginning with the $20-billion-plus annual budget of the National Institutes of Health.
Government and philanthropic research grants in the billions of dollars also fund study at major universities, including centers of biotech excellence such as Harvard, the University of Chicago and a phalanx of University of California campuses: San Diego, Irvine, Los Angeles and San Francisco. Great advances are also being made at Stanford and the California Institute of Technology.
Research on these campuses spreads far from the proverbial “ivory tower.” At Caltech, for instance, professor John Baldeschwieler has long encouraged his biochemistry students to set up companies to develop new drugs, using university research under license.
Eidogen Inc., a 2-year-old Pasadena firm founded by a Caltech graduate student, has developed computer software to swiftly determine the structure of proteins in the human genome. Armed with this knowledge, scientists hope to inhibit disease and improve health.
Work that grows from the endowments of other major nonprofits -- such as the Scripps Research Institute and the Salk Institute in San Diego, as well as the John Wayne Cancer Institute in Santa Monica -- also finds its way to the marketplace.
CancerVax Corp., for example, was spawned from research conducted at the John Wayne institute (whose namesake died of stomach cancer). The Carlsbad-based company is in the final stage of clinical trials for a vaccine that could prevent the recurrence of melanoma -- the deadliest form of skin cancer -- after surgery has removed the initial tumors. The innovation is that the vaccine rouses the body’s immune system to counteract the cancer’s attack.
CancerVax, which has attracted more than $80 million in venture capital since being launched less than three years ago, hopes to adapt its immunotherapy to cancers of the colon and lung, as well.
Another promising start-up is San Diego-based TargeGen Inc., whose origins can be traced to laboratory work performed at Scripps. TargeGen is developing a drug that suppresses development of damaging chemicals and scar tissue that form in the body after heart attacks and strokes. Formed a year and a half ago with backing from Enterprise Partners, the company also is working on drugs to combat eye diseases and breast cancer.
If trials are successful, these products -- and many, many more -- will be rushing into production in the next few years. On Wall Street, biotech may be out of favor right now. But the industry is about to burst out.
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James Flanigan can be reached at jim.flanigan@latimes.com
