A Boon for Biotech

Tuesday, December 19, 2000
By Rob Terry ,
Washington Techway Staff Writer

URL: http://www.washtech.com/news/biotech/6102-1.html

Date accessed: January 7, 2001

Why? Because it could mean biotech companies looking at more ways to partner with other biotechs, rather than linking with pharmaceutical companies. It's an outgrowth of an industry standing more firmly on its own feet, thanks to the sequencing of the human genome and a new love affair with capital markets, plus the dot.com implosion.

In fact, 2000 will go down as biotech financing's high-water mark. "This industry has traditionally operated on not a lot of cash," says Salas, senior manager with consulting company Ernst & Young's Mid-Atlantic Area Life Sciences practice. "So you saw some mergers, some collaborative arrangements. Those will continue. But you'll also see more bio-to-bio deals, where it used to be bio-to-pharma deals.

"Biotech companies are no longer looked at as simply being a pipeline to pharmaceutical companies," he adds. "Now you're going to see biotech companies who have a technology who are trying to broaden their technological base buying other biotech companies." Like Human Genome Sciences, the Rockville gene-based drug developer. Its $120 million acquisition of Principia gave HGS the company's protein fusion technology for more efficient testing and enhanced manufacturing capabilities. HGS chairman and CEO William A. Haseltine called the deal "an important strategic step for our company. ... The people, knowledge and facilities will substantially broaden and extend our ability to develop and manufacture proteins and peptide drugs."

It was but one move in a year in which HGS also split its stock, entered a joint development agreement with SmithKline Beecham and executed an additional $825 million stock offering. And venture capitalists have been broadening and extending their relationship with biotech companies all year.

Ernst & Young, which recently released its national biotechnology industry report, is now estimating that biotech companies will have raised at least $40 billion in financing this past year. A year ago, they raised $4.1 billion.

Statistics compiled by the Mid-Atlantic Venture Association and Venture Economics show that seven biotech companies in Maryland and Virginia have received $110 million in venture funding since June.

Former HGS scientist Wei-Wu He and former T. Rowe Price portfolio manager William Snider are the principals at Emerging Technology Partners, overseeing a new $40 million venture fund focusing on genomics companies in a partnership with Friedman, Billings, Ramsey Group. They've already invested in such local companies as Bethesda bioinformatics company InforMax and Rockville genomics company Aptus Genomics. And the Monument Funds Group has tapped Alidad Mireskandari, who holds a doctorate in genetics from George Washington University and a business degree from the University of Michigan, to manage its medical science fund and a new genomics fund.

The activity is prompting competing reactions in the biotech community: a sense of validation, that the business models are being recognized for soundness and profitability potential; excitement at the prospects of gene sequencing breakthroughs and subsequently willing investors resulting in shortened drug development and delivery times; and apprehension that companies with access to new pools of money will lose their focus. "It's really been an incredible year," says Salas.

Incredible because this year's funding total exceeds the previous five years combined, according to Salas. Incredible because the new high set this year is four times higher than the previous watershed year. HGS and Celera Genomics have been joined by companies like Gene Logic and Guilford Pharmaceuticals in fattening their financial bottom line.

Startups like Avalon Pharmaceuticals and Psychiatric Genomics have launched, angling to capitalize on the expected flood of human genetic code data. Established companies such as Rockville's Celera and Germantown's Large Scale Proteomics and entrepreneurs are targeting the emerging proteomics sector. Even so, biotech companies haven't been immune to market volatility.

EntreMed, the Rockville cancer drug developer, has seen its stock price hover near its initial public offering price despite moving its three anti-tumor drugs into advanced testing stages and renewing its research partnership with famed cancer researcher Judah Folkman.

The company raised $49 million this year in the capital markets and was planning a supplementary stock offering of $2 million shares but shelved it after the spring market downturn. In a recent year-end conference call, analysts and investors applauded EntreMed's efforts while engaging in head scratching over the stock's performance and the company's future financial health. Company executives said EntreMed had about $28 million to $29 million cash on hand, enough for about six to eight months of operations.

"I think the perceptions will be swayed by [research] data," company CEO John Holaday said during the conference call. "I think it's inevitable that the marketplace will come to recognize this."

Noting that conventional industry wisdom holds that companies take eight to 10 years to mature, "We're in the process right now as a nine-year-old company of beginning that transition," Holaday added.

"The money's coming in, but I think there's more money that will come in," EntreMed CFO Thomas Russo says in a separate conversation. "With the Internet there were no controls, no real market forces coming into play." With biotechnology companies, "there's something to gauge success against," such as government regulation and FDA approval, Russo adds.

"At least with biotechnology you can tell certain risk profiles," he says.

Reported by Washington Techway .

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