July 2000

The Bio Biz

From Alchemy to IPO: The Business of Biotechnology

By Wade Roush

It often seems that Wall Street picks the latest "hot" tech stocks based on little more than a sexy name. In the biotechnology arena, especially, there's a surfeit of both sexy names (Ariad, Biomatrix, Mitotix, Valentis) and uninformed investors. When President Bill Clinton and British Prime Minister Tony Blair issued a joint statement in March endorsing the immediate release of raw DNA sequence data by labs doing genomic research, flighty investors assumed that the two governments planned to restrict the patenting of human genes, sending the stocks of firms such as Celera and Incyte into a nosedive. In fact, both Britain and the United States already openly share genetic data. Investors "don't understand what they're investing in," one industry expert told Science magazine.

For any trader with an attention span longer than seven days (the average churn time for stock in Amazon.com, according to Business Week), Cynthia Robbins-Roth's new book should make it possible to buy and sell biotech stocks more intelligently. Robbins-Roth is a former Genentech scientist, a biotech columnist for Forbes and the founder of BioVenture Consultants, which advises venture capital firms. She describes the combination of daring, ingenuity and luck that helped mavericks like Genentech, Amgen and Genzyme put the industry on the map in the 1970s and 1980s, then explains how the giant pharmaceutical companies have come to dominate the labs, clinics and boardrooms where the contest for biotech profits is played today. Biotech, which accounted for more than half of the $6 billion earned by the top nine biopharmaceutical companies between April 1998 and March 1999, "has evolved into the research and development force supporting the drug industry," she observes. That means investors need to pay attention to a company's science and to the products in its pipeline.

Mindful that her audience's highschool biology may be rusty, Robbins-Roth starts with the basics, but quickly accelerates to such arcana as biochips, signal transduction and antisense therapy. She tells how these approaches can lead to new drug candidates and identifies the companies working on each. Then she details the long ordeal a biotech company must endure before a new drug can become a money-maker, from finding big pharma partners to succeeding in safety and efficacy trials.While it's hard for any outsider to judge a new drug's chances, Robbins-Roth's pointers should at least help investors decide whether, as she puts it, "a news item is devastating or merely an expected hiccup on the way to FDA approval."