7-Business: Biotech investment busy going nowhere

[GENET <coordination@genet-info.org>]

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TITLE:  Biotech Investment Busy Going Nowhere
SOURCE: ISIS, UK, by Claire Robinson
        http://www.i-sis.org.uk/BIBGN.php
DATE:   13 Jul 2004

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Biotech Investment Busy Going Nowhere

Claire Robinson exposes the financial woes of the biotech industry

The sources for this article are posted on ISIS Members' website.

Biotechnology is the answer to problems ranging from hunger in Africa and
Asia to obesity in the West. This was the upbeat message from the
industry's promotional showcase, the BIO 2004 conference, which took
place in San Francisco in June. In launching the conference, BIO (the
Biotechnology Industry Organisation) trumpeted, "the biotechnology
industry is performing well across a variety of financial and product
development measures."

But not everyone was persuaded. This year's media coverage of the annual
event was decidedly cynical. A report in the Asia Times commented, "For
many in the scientific community, the smorgasbord of marketing claims
merely adds to the credibility problems that are piling up against
genetic engineering, especially as its base claims of boosting food
output have not been realized."

Another jaded reporter, David Ewing, wrote in the San Francisco
Chronicle, "As of yet, most of what I'm looking for here is in the
'promise' category - and has been each year I have come to this ever-
larger industry fete."


Falling investment

Disappointment at the biotech industry's unfulfilled promises is
reflected in its falling bottom line. As the New Zealand Herald said,
"Investment in genetically modified food is drying up in the world's
biggest GM market, the United States, because consumers in the rest of
the world are not willing to buy its products."

Roger Wyse of Burrill and Company, the biggest investment firm focused on
life sciences, said the consumer backlash against GMOs had forced a lull
in projects aimed at modifying food. "We are probably looking at three,
four or five years before the GMO issue subsides sufficiently that we
will feel comfortable investing in it," he said.

Lack of investment has led to massive losses. Back to Ewing: "Last year,
this industry lost $5.4 billion, and has lost a staggering $57.7 billion
since BIO last held its annual conference in San Francisco in 1994,
according to an Ernst and Young study. Only a few companies have been
consistently profitable in the 30 years since biotech was born - a few,
such as Amgen and Genentech, fantastically so. Remove them, and the
losses and numbers are far worse for the rest of the industry."

An article in the usually biotech-bullish Wall Street Journal drove home
the point. Entitled "Biotech's dismal bottom line: More than $40 billion
in losses", the article said, "Biotechnology... may yet turn into an engine
of economic growth and cure deadly diseases. But it's hard to argue that
it's a good investment. Not only has the biotech industry yielded
negative financial returns for decades, it generally digs its hole deeper
every year."

The Journal points out that this truth becomes lost in the periodic
bursts of enthusiasm for biotech stocks, one of which is under way right
now. After a three-year slump, biotech companies raised $1.5 billion from
new stock offerings in the first quarter of 2004, almost three times the
level of a year earlier. Thus BIO was able to boast that while major
stock indexes have slipped this year, the Nasdaq Biotech Index had edged
up about 6 percent at close of markets on 2 June.

In the absence of consumer take-up of its products, selling stocks has
become a biotech industry lifeline. In 2003, US biotech firms raised
almost $4 billion by selling new stock to investors, according to Burrill
& Co. The same year, US biotechs as a group posted almost that much in
losses. Only 12 of the 50 largest biotechs turned a profit in 2003.


Meltdown continues

In the UK, the biotech meltdown continues apace. Earlier this year, it
emerged that two biotech firms linked to science minister and donor to
the Labour Party, Lord Sainsbury, are facing serious financial
difficulties. Diatech Ltd, which holds several patents for techniques
designed for use in GM foods, has gone into liquidation, while
biotechnology investment firm Innotech is making huge losses.

At the end of June, the British GM science lobby despaired at news that
Anglo-Swiss biotech giant Syngenta was withdrawing from the UK and
transferring to North Carolina in the US. Syngenta was the last biotech
company to retain a significant GM research presence in the UK after
decisions by Monsanto, Dupont and Bayer Cropscience to withdraw.

 Whether Syngenta will face a more sustainable future in the US is open
to question. Almost one-sixth of the more than 350 US biotechs that went
public over the past two decades were bought out for pennies on the
dollar, dissolved themselves or had filed for bankruptcy protection by
the end of 2003. Examples include Escagenetics, Advanced Tissue Sciences,
ImmuLogic and Gliatech.

In May, San Diego-based Epicyte Pharmaceutical, one of the last vestiges
of the city's attempt to become an agricultural biotech stronghold,
closed. The demise of Epicyte was lamented as "the latest casualty for
the region's fledgling agricultural biotechnology industry, which just
five years ago appeared to hold considerable commercial promise." In
1999, Stephen Briggs, the head of San Diego's Novartis Agricultural
Discovery Institute, which was building a major research campus,
predicted San Diego could become the "Silicon Valley of agricultural biotech."

 Yet the industry didn't retain a stronghold there: a consumer backlash
against GM food, along with high-profile industry blunders such as the
StarLink contamination incident, nipped investor enthusiasm in the bud.
In 2000, the Novartis Agricultural Discovery Institute was folded into
Syngenta. Then in 2002, Syngenta closed the La Jolla, San Diego unit.
Other San Diego agricultural biotechs also disappeared. Mycogen was
purchased by Dow Chemical, and Akkadix Corp. faded from the scene. Dow
retains a research unit in San Diego, but moved a second agbiotech unit
out of the state.


Biotech medicines a refuge of hope

Biotech drugs have long provided a refuge of hope for investors wary
about the prospects for agricultural biotech. The promise of lucrative
magic bullets against intractable diseases attracted those who kept faith
in the genetic determinist model of illness. Biotech pioneers stoked
investor enthusiasm by arguing that since biotech drugs are often
versions of human proteins, genetic engineering could cut short the long
safety trials that traditional drugs go through. But that didn't turn out
to be the case, and most genetically engineered medications take 10 to 15
years to win approval, much the same as other drugs.

At the turn of the millennium, hopes rose with the hype when the
deciphering of the human genome appeared to herald a new age of
treatments tailored for individual genetic differences. This sparked an
incredible 170% rise in biotech stock prices in just four months -
followed by a steep crash over the next year. By 2002, disillusionment
had set in. Canadian magazine Maclean's reported, in an article called
"Biotech hope and hype: The genetics revolution has failed to deliver",
"Federal and provincial governments have long had a love affair with
genetics, pumping billions into the biotech biz... 20 years later and how
many breakthrough products has biotech produced? Gene therapy may
actually have harmed more people than it's helped. ... The few drugs
derived from GE such as insulin simply replace existing products while
creating new risks."


Bad-idea virus

We've seen how one lifeline for a largely unprofitable industry is
selling stocks. Another is public money. The BIO conference, reported
Associated Press, was packed with mayors and governors from across the US
desperate to lure biotech companies to their area with promises of tax
breaks, government grants, even help with parking. Yet biotech, wrote the
AP, "remains a money-losing, niche industry firmly rooted in three small
regions of the country: 'This notion that you lure biotech to your
community to save its economy is laughable,' said Joseph Cortright, a
Portland, Ore. economist who co-wrote a report on the subject. 'This is a
bad-idea virus that has swept through governors, mayors and economic
development officials.'"

A case in point is Florida governor Jeb Bush, brother of president George
W. Bush. Jeb Bush spearheaded an initiative to hand over $510 million of
Florida and Palm Beach County taxpayers' money to build a new biotech
centre for the Scripps Research Institute, based in San Diego. Land,
buildings, labs, offices, equipment, even employees' salaries for seven
years: Scripps got it all for free, putting in no money of its own. The
company will eventually repay Florida up to $155 million, half of the
state's investment. But the payback provision will not kick in until
2011. Bush and other Florida officials hope that Scripps will make
Florida a biotech hub - like San Diego.

The wisdom of using San Diego as a model is questionable, given the
industry's record of failure there. But Bush seems blind to the risks.
"It's always good to have sceptics, but I like to be on the dreaming
side," he told the press. "It's a lot more fun on the dreaming side of
the road."

According to a report prepared for BIO and released at its annual
convention in San Francisco, at least 29 states have formal plans to woo
the biotech industry. Many, like Pennsylvania, are using money gained
from the global tobacco settlement to fund biotech development projects.

How does this "bad-idea virus" gain such a hold over so many? In an
article in Nature Biotechnology, medical bioethicist Leigh Turner of
McGill University, Quebec, suggests that biotech fulfils many of the same
needs as religious fanaticism: "Biotech, in a similar manner to many
religious movements, has its charismatic prophets, enthusiastic
evangelists and enrapt audiences. Like religions, it offers a comforting
message of salvation. Instead of imagining a day of rapture when the dead
rise from their graves to begin eternal life, biotech enthusiasts imagine
the era when medical technologies provide a renewable, largely
imperishable body. ... Biotech is not just an assemblage of research
programs and techniques. In a scientific and technological era, biotech
also offers a surrogate religious framework for many individuals."

Within this framework, it is a small step to the type of language found
in the Nuffield Council report and repeated by biotech 'evangelists' such
as Derek Burke, which insists on the "moral imperative for investment
into GM crop research in developing countries". And once that article of
faith is swallowed, it is but another small step to appropriating public
money to promote and export biotech to the third world under the guise of
aid and development programmes.

 As private finance for biotech dries up, the industry is increasingly
turning to government to provide investment to force the crops the West
doesn't want into Africa and Asia. The British government has already
quietly sunk over £13m of public money into such projects via the
Department for International Development during a period of intense
domestic disquiet over GM. It has also sunk further money, along with
USAID, into the Nairobi-based African Agricultural Technology Foundation
(AATF) project to push GM crops into Africa.

What is so insidious about this, as Dr Tewolde Berhan Gebre Egziabher,
the head of Ethiopia's Environmental Protection Authority, has noted, is
that "the moral imperative is in fact the opposite. The policy of drawing
funds away from low-cost sustainable agriculture research, towards hi-
tech, exclusive, expensive and unsafe technology is itself ethically
questionable. There is a strong moral argument that the funding of GM
technology in agriculture is harming the long-term sustainability of
agriculture in the developing world."

Nobody should be in any doubt that the GM lobby's real aim has little to
do with feeding the hungry. It is to shore up GM research in the UK in
the face of industry's current retreat, to associate the technology in
the official mind with the public interest, and to give GM's public
relations campaigns a charitable face.




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